Abnormal return
This is the difference between the expected return of a security or portfolio and its actual return. Abnormal returns could be either positive or negative, depending on whether the actual returns are higher or lower than expected.

Account balance
The amount of money in an account, or the amount owed to a third party.

Accrued interest
Interest that has been accumulated, but has not yet been paid or received.

Acquisition
The act of one company to take over all, or part, of a target company.

Alpha
The amount by which a fund has out-performed its benchmark, taking into account the fund´s exposure to market risk (as measured by Beta). Alpha is also known as the residual return.

Alternative Investment Market (AIM)
A stockmarket launched in June 1995 in London for smaller growing companies which would not normally qualify for listing on the main market.

Annual General Meeting (AGM)
An annual forum for a company where shareholders can exercise their voting rights.

Annual report
A legally-required document filed each year by each fund that includes a description of how the fund has invested its assets. It provides investors with an overview of the fund with financial details such as a company and consolidated balance sheets, a statement of total return, an auditor´s report and includes information on the managers, the directors and the chairman of the fund. The chairman´s statement reflects the past year and the report should also mention any upcoming issues and meetings relating to the fund.

Annual return
Comparison of the performance of the fund, its category and the category index over calendar year periods.

Annualised return
Refers to the conversion of the return on an investment into a yearly rate. For example, if Fund A returned 5% over six months and Fund B returned 4% over four months, Fund A´s annualised return is 10,25% and Fund B´s is 12,49%.

Ask price
The best price at which market makers are willing to sell the share on a market exchange. Also called the offering price.

Asset
A financial property that has value.

Asset classes
Broad investment categories that offer differing levels of risk and return, such as shares, bonds, property and cash. Shares tend to provide the best potential for capital growth but with relatively high levels of risk. Bonds offer income with a moderate degree of risk. Property offers capital growth but with the potential for illiquidity. Cash presents the lowest level of expected return but ensures liquidity and the safety of the original investment.

Asset management
A general term for management of a portfolio of a pre-determined group of asset classes, such as shares, bonds or cash.

Asset turnover
An efficiency ratio of Net Sales Revenue/ Average Total Assets.

Asset-backed security
A security whose value is collateralised by a group of underlying assets such as a loan, lease or receivable

Authorised
An authorised investment business is one that adheres to the Financial Services Act which states that all investment businesses operating in Britain are required to be a member of one of the regulatory bodies established under the Act.

Available for dividends
The total amount of cash that could be paid in dividends i.e. profit after tax, minorities and preference share dividends.

Bailout
An effort to provide money to a failing entity (i.e. business, country) in order to prevent the entity from weakening further.

Balance sheet
A balance sheet is a snapshot of the financial state of a company at a single point in time. It is a financial report that shows the company’s assets, liabilities and shareholders’ equity on a specific date (usually the end of the month). Assets are equal to liabilities plus equity. Essentially it shows what the company owns and what it owes in debts.

Bankrupt
The legal status of an individual or a company when they can’t pay debts. When a company or individual becomes bankrupt, a trustee is appointed to administer the assets to its creditors. Also called insolvency.

Basis point
One one-hundredth of 1% (0.01%). Used to measure changes in interest rates. For example, a change in interest rates from 6.25% to 6.75% would be an increase of 50 basis points.

Bear Market Beta
Bear Beta is a measure of the sensitivity of a fund’s return to negative changes in its benchmark’s return.

Bearer bond
A bond that is owned by the possessor of the bond, rather than being registered to a named owner.

Benchmark
An index against which a fund measures its performance. Funds typically compare their performance against indices such as the FTSE 100 or the S&P 500.

Best offer
The best market makers price to sell a security or instrument

Beta
A measure of a fund’s sensitivity to market movements. The beta of the market is 1.00 by definition. A beta of 1.10 shows that the fund has performed 10% better than its benchmark index in up markets and 10% worse in down markets, assuming all other factors remain constant. Conversely, a beta of 0.85 indicates that the fund is expected to perform 15% worse than the market´s excess return during up markets and 15% better during down markets.

Bid Price
The price at which the unit-holder of a unit trust can sell shares.

Blue Chip
Blue chips are shares in a large, reliable well-managed company with a strong credit rating. In the UK many blue-chips are listed on the FTSE 100.

Bollinger bands
These provide a relative definition of price highs and lows. Bollinger bands are charted by calculating a simple moving average of the closing price, then creating two bands a specified number of standard deviations above and below the moving average. These bands narrow and widen in line with volatility – narrow in calm markets and wide in volatile markets. The narrowing of the bands often indicates the start of a new trend, which is confirmed when prices break and close out of the band.

Bond
An IOU issed by a company or the government. During the life of the bond, the bondholder receives regular interest payments based on the coupon rate. On maturity the loan is repaid. Certain exceptions apply such as zero coupon bonds, which provide no interest payments, but are issued at a discount.

Bond covenants
Stipulations in a bond contract that are meant to protect both parties from risk.

Bond Funds
A porfolio which invests mainly in bonds with the aim of providing a steady stream of income to investors. The value of bond funds tends to be inversely linked to interest rate changes.

BRICS
A group of countries with growing and developing economies. These emerging countries include, Brazil, Russia, India, China, and recently added potential member South Africa.

Broker
A firm or individual that acts as an intermediary between a buyer and a seller of securities, thereby earning a commission on the transaction. Unlike a broker-dealer a broker does not own the securities that he or she sells.

Bubble
An increase in prices to levels above fundamental values which results in large drops and sell-offs when the bubble “bursts”.

Buy / sell indicator
A graphical representation of the cumulative “BUY”, “SELL” and “?” volumes traded on the day.

Buy and hold strategy
A method of investment which involves purchasing shares and keeping them for a relatively long period. By definition it entails a low turnover. The opposite technique is sometimes known as a trading strategy.

Buying on margin
Purchasing a security with credit available through a broker, using a “margin account”.

CAC 40 index
An index containing forty major French companies listed on the Paris Bourse.

CAPEX Per Share
(Capital Expenditure/Weighted Average Shares In Issue) x 100 = X%
Capital Expenditure = Asset Purchases (not property) – Asset Sales (not property)

Capital Asset Pricing Model (CAPM)
A mathematical model used to help price a security by determining the relationship between risk and expected return. CAPM is a key element in portfolio theory, in which the expected rate of return (E) on an investment is expressed in terms of the expected rate of return on the market portfolio (rm) and the Beta coefficient ((beta)), E = R + (beta)(rm – R), where R is the risk-free rate of return.

Capital gain
The profit made on the sale of an investment, i.e. unit trust shares. The loss on a sale is a capital loss.

Capital structure
Refers to the way in which a company is financed by investors. The basic financing choice is between equity (shares) and debt (bonds). The ratio between debt and total capital, which combines debt and equity, is the most commonly cited summary of capital structure.

Cash Flow Per Share
Cashflow/Average Shares In Issue (During The Financial Year) 
Cashflow = Cash from Operating Activities + Investment Returns & Servicing of Finance – Tax Paid

Cash flow
What a company makes minus what it spends. A company’s cash flow is its income (minus investment earnings) less what it spends on rent, equipment, and other costs. Some investors use cash flow instead of earnings to judge how well a company is doing.

Certificate of deposit
A savings certificate granting interest to the owner.

Closing share price
A company’s share price at the end of trading on a particular day.

Commission
The charge levied by a broker for buying or selling shares on your behalf. The fee can vary depending on the size of the order and the degree of advice you received.

Commodity
A physical item with many identical items that can be exchanged during commerce or in a commodity exchange.

Convertible bond
A company issued bond that may be converted into shares in that company during the life of the bond for a pre-stated price. The decision to convert may rest with either the issuer of the bond or the investor but is not obligatory.

Corporate bond
A bond issued by a corporation to an investor as a means of raising money. The par value, otherwise known as face value, of the bond is repaid when the bond matures. In addition, interest is paid at set intervals and the bonds can be traded on major exchanges. Because bonds are taxable, they are also offered in tax wrappers such as ISAs (Individual Savings Accounts).

Coupon bond
With a coupon bond, the interest and principal due are paid to the holder of the bond, who is not necessarily the one to whom it was initially issued. In return for a coupon attached to the bond being surrendered at regular intervals, an interest payment is issued.

Credit quality
The assessment of a bond based on its financial condition to establish its quality and safety.

Credit rating
Assess the probability and likelihood that a company will default on a bond. Many ratings companies offer their own ratings systems including Moody´s, Standard & Poor´s and Fitch. Bonds with ratings from AAA to BBB- are deemed to be ´investment grade´ while BB+ and below are known as ´speculative grade´.

Currency
The currency of the transaction.

Currency swap
A swap consisting of two loans in different currencies.

Current ratio
A liquidity ratio measuring current assets/ current liabilities.

Custodian
The organisation such as a bank or trust company responsible for the safekeeping, and sometimes settlement, of investments owned by a fund.

Dax 30
An index containing the 30 largest German companies. They are ranked on the basis of free float market capitalisation (how much of the company is available to be traded on the market).

Day Change
The cumulative volume of shares traded on the day.

Day trading
The practice of attempting to make profit by buying and selling securities in the same day.

Day Vol.
The annualised gross dividend per share for the last reported period, expressed as a percentage of the latest share price.

Deflation
A decrease in the price level of goods and services.

Depreciation
A method of assigning costs periodically over an asset’s useful life.

Derivative
A generic expression for securities whose prices are based on the prices of another underlying investment. Types of derivatives include futures, options, swaps and warrants.

Discount rate
A way of converting the future value of an investment into its present value. For example, this can help an investor decide what is a fair price to pay for a bond that will pay £50 in interest each year and £1000 at maturity by determining how much the cash streams in the future are worth today.

Discount to NAV
The difference between the value of the underlying assets of an investment trust and the value indicated by its share price. Usually expressed as a percentage. Investment trusts can also trade at a premium to their net asset value (NAV) but it is rare.

Diversification
Spreading risk by investing in assets with different characteristics. For instance, an individual might invest in a combination of bonds, property and shares. Or share-based funds might invest in a variety of countries or market sectors. Investors can also diversify by investing in a range of different types of funds.

Dividend
An after-tax distribution of a company’s or fund´s profits to shareholders, normally specified in pence per share in Britain. Dividends are usually paid twice a year – interim and final.

Dividend yield
A percentage that is calculated by dividing total dividends by the current price and multiplying by 100. For example, if a fund distributed a 10p dividend and the current share price is 210p the dividend yield is 4.76%.

Dow Jones Industrial Average
A stockmarket index which tracks the performance of 30 of America´s largest companies. Often shortened to “the Dow”.

DPS
Payment made to shareholders out of the profits of a company. There are 5 types of dividend: interim, final, 1st quarter, 3rd quarter and special. Ex Date is the date after which buying the share after does not entitle the buyer to receive the most recently declared dividend. Payment Date is the date when the dividend is payable to shareholders on the register at the Record Date. Record Date is the date on which a shareholder must officially own shares in order to be entitled to the dividend. Dividends are expressed in pence.

Durables
Proportion of portfolio invested in companies operating in areas such as automotives, household goods, multi-industry firms, recreation (luxury goods), rubber/plastic, shoes and leather, textiles, and textile manufacturers.

Duration
The average time to payment. Also a measure of the effect of interest rate changes on the price of a fixed income asset or portfolio. Duration is defined in years (that is a three year duration means the value of the bond could rise about 3% if interest rates fall by 1%).

DY (%)
The annualised gross dividend per share for the last reported period, expressed as a percentage of the latest share price.
The calculation for dividend yield is as follows: Div yield (%) = 100 * Gross dividend per share (net dividend *100/90)/latest share price.

EAR
Effective annual interest rate is the annual rate when interest is compounded more often than annually.

Earnings
A company’s income during a certain period. The cost of sales, operating expenses, depreciation, taxes and other expenses are subtracted from revenue.

The figure is usually expressed on a per share basis, as Earnings per Share (or EPS), and used as the key element of the Price Earnings Ratio (or PER or P/E Ratio) in judging comparative values.

Earnings Per Share (EPS)
A company’s total earnings divided by the current number of shares outstanding. EPS gauges the profitability of the company from the view of the shareholders. It is used to calculate the price-to-earnings ratio P/E.

EBIT
(Earnings Before Interest & Tax)

Normalised Earnings + Net Interest + Tax

EBITDA
(Earnings Before Interest Tax Depreciation & Amortisation)

Normalised Earnings + Net Interest + Tax + Depreciation + Amortisation

Enterprise Value (EV)
Market Capitalisation + (At last close) Total Borrowings – Cash & Equivalents

EPIC
The London Stock Exchange code for each security. EPIC is an acronym for Exchange Price Information Code.

EPS Growth (Forecast)
Prospective Normalised EPS Growth (%) 
This is calculated on a 12 month rolling basis.

Equities
An alternative term for shares.

Equity fund
A fund investing primarily in shares. It can be based on any number of investment strategies.

Equity risk premium
The additional reward an investor can expect to receive for taking the risk of investing in shares rather than cash or government bonds. It can be expressed both in historical terms or as an expectation of future rewards.

Equity Sector
By selecting this box, the user can override the sector weight defaults. The default weights are aiming to maintain a high level of diversification and have been established by reference to the US and European equity markets, with a further reduction in the large weight of financial stocks in both markets. The user can act either on the sectors themselves, or on the super sectors, using the relevant buttons. When the user acts on super sectors, the respective weights of the sectors inside each super sector retain their original relative weights for maximum diversification.

Equity value
The amount of value in a company that is available to shareholders.

Euro-zone
The region which has adopted the euro as its currency. Current members: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

Eurobond
A form of debt in which the currency is different from that of the country in which it is issued. For example, a dollar-denominated bond issued in the UK.

EV/EBITDA
(Enterprise Value/Earnings Before Interest Tax Depreciation & Amortisation) 
EV = Market Capitalisation + (At last close) Total Borrowings – Cash & Equivalents 
EBITDA = Normalised Earnings + Net Interest + Tax + Depreciation + Amortisation

Ex-Dividend / Ex-Coupon
The term ‘Ex’ is used to indicate that the share is currently available in the market with a lack of certain specific rights and conditions. ‘Ex dividend’ refers to a share sold without the right to the dividend – the seller retains the declared dividend. Ex-dividends are normally sold in the period between the announcement and payment of the dividend.

Exchange-trade fund (ETF)
ETFs are hybrid instruments combining aspects of investment trusts and unit trusts and offering many the benefits of both. ETFs are products that trade like shares on the London Stock Exchange. They mimic stockmarket indices and are passively managed just like an index fund.

Executive officer
An employee of a listed company who holds a position of responsibility but does not sit on the board e.g. company secretary, head of personnel.

Expected return
The return that is anticipated on an investment.

Expense Ratio
The expense ratio is the annual fee that all funds or ETFs charge their shareholders. It expresses the percentage of assets deducted each fiscal year for fund expenses, including distribution fees, management fees, administrative fees, operating costs, and all other asset-based costs incurred by the fund.
Portfolio transaction fees, or brokerage costs, as well as initial or deferred sales charges are not included in the expense ratio. The expense ratio, which is deducted from the fund’s average net assets, is accrued on a daily basis.

Expenses
Any cost which reduces the profit of a particular accounting period.

Extraordinary General Meeting (EGM)
A meeting of shareholders to discuss and approve special matters proposed by the directors, such as approval of a take-over, or major acquisition.

Federal funds rate
The most widely quoted American interest rate. This rate, determined by the Federal Reserve´s Federal Open Market Committee (FOMC), determines how much American banks charge one another to borrow Federal Funds – the money they have previously deposited into Federal Reserve banks to make up their reserve requirement. The system aims to facilitate those with excess reserves lending to those which have fallen short.

Federal Open Market Committee (FOMC)
The body that sets American interest rates. It consists of seven members of the board of governors of the Federal Reserve and five of the 12 Reserve Bank presidents. The FOMC oversees open market operations – the primary tool of monetary policy – establishes ranges for the growth of monetary aggregates and directs operations undertaken by the Federal Reserve in foreign exchange markets.

Fees & Expenses
The average fees and expenses for all funds in the portfolio.

Fettered
A term usually used in relation to a fund of funds. It means the fund of funds is restricted to investing only in the internal funds run by the same fund management group. The opposite is an unfettered fund of funds.

Final results
The announcement and publication of the company’s financial results for its latest business period, or financial year, in the form of the Annual Report and Accounts. See also Prelims.

Financial adviser
An individual or firm that offers advice on investments and other financial products, either on a commission basis or for a flat fee. The current system, known as polarisation, allows two distinct types: Independent financial advisers (IFAs) who base their recommendations on all products in the particular market, and those tied to the products of a single company. This system of advice is currently under review.

Financial crisis
A significant and swift drop in value of assets and financial institutions characterised by large sell-offs and withdrawals.

Financial Leverage
Financial leverage measures the extent to which a company’s assets are financed by debt.
This is calculated by dividing total assets by total shareholders’ equity.

Financial PR
A public relations agency that deals the with the listed companies relations with the investor community.

Financial Services
Proportion of portfolio invested in banks, finance companies, asset management firms, securities brokers and insurance companies. Examples include Egg, ING and BSCH.

Financial Services
Proportion of portfolio invested in banks, finance companies, asset management firms, securities brokers and insurance companies. Examples include Egg, ING and BSCH.

Financial Services Authority (FSA)
The the City’s leading financial regulator. It is responsible for policing the financial services industry to protect investors´ interests. The FSA regulates the financial services industry and has four stated objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

Financial Year
A 12-month accounting period over which a company reports its profits. It is not aligned with the calendar or tax year.

Financials
Proportion of portfolio invested in companies operating in areas such as banking, insurance, investments and property investment. Some examples of companies in this sector include Amvescap, Aviva, HSBC and Lloyds TSB.

Financing
All transactions relating to raising funds to operate the business.

Fixed asset
An asset which is used by a company on a long term or continuing basis as opposed to assets which are used up in a short period of time or sold on to customers. These tend to be tangible property used in the operations of a business such as plant, machinery and equipment that normally won’t be sold for cash. Fixed assets are found on a company’s balance sheet at their net depreciated value.

Fixed Income Fund (Bond Fund)
A fund which invests primarily in bonds. Its assets can include corporate debt, government debt or a combination of the two types.

Flagship Fund
Typically the oldest of a group´s products or the one that boasts the largest assets under management. Such funds often bear the management group´s name.

Float
The number of shares of a company available for public trading.

Form 10-K
A Company’s annual report submitted to the SEC detailing a company’s performance and financial position

Frontier Market
A frontier market is an investable stock market that is less developed than the emerging markets.

FRS3 EPS
Earnings per share is the relationship of the profit after tax attributable to each share in issue. FRS3 EPS is the unadjusted or ‘as reported’ EPS which all companies are required to publish by financial reporting standards. FRS3 EPS (p)= FRS3 earnings/weighted average shares in issue.
Where:
FRS3 earnings = unadjusted profits after tax – unadjusted minority interest – unadjusted preference dividends.

FT 30
An index based on the share price performance of 30 of the largest British companies. Largely superseded by the FTSE 100.

FTSE
FTSE, also pronounced “Footsie”, is named for the Financial Times (FT) and the London Stock Exchange (SE), who are its joint owners. The FTSE family has numerous indexes including the FTSE 100, 200, and techMARK, but most commonly, Footsie refers to the FTSE 100. This is a common abbreviation for the FTSE 100, a stockmarket index based on Britain’s 100 biggest companies. Other indices in the FTSE family include the 350 and the All-Share.

FTSE 100
An index comprised of the 100 largest companies by market capitalisation on the London Stock Exchange.

FTSE 250
An index that measures the share price performance of medium-sized British companies. The next 250 largest firms after those in the FTSE 100.

FTSE 350
An index that measures the share price performance of the 350 largest British companies. A combination of the FTSE 100 and FTSE 250.

FTSE All Share Index
An index the measures the share price performance of the 900 largest companies on the London Stock Exchange.

Fund
A portfolio of assets such as bonds or shares.

Fund Company
An investment group offering a range of funds to investors.

Fund Currency
The currency in which a portfolio trades.

Fund Family
A group of funds, with various investment strategies, available from the same fund group. Fund families may offer investors the opportunity to shift funds between the company’s funds for a reduced fee or waive the fee entirely.

Fund Manager
An individual, employed by a fund group, who is responsible for managing a fund´s portfolio.

Fund News
The latest news stories published by the Morningstar editorial team.

Fund of Funds
A fund that specialises in buying shares in other funds rather than individual securities.

Fund Quickrank
The Quickrank tool enables users to order funds according to a wide range of criteria including: * Returns over several time periods * Morningstar rating * Stylebox. * Volatility * Fees The tool can be applied to the whole universe of funds or alternatively it can be narrowed down to examine the funds within a selected category or fund group.

Fund Search
Enter partial or full fund or company name and click to search Morningstar fund database.

Fund Selector
The Fund Selector enables users to create a shortlist of funds which meet their specified criteria. These can include returns, risk characteristics and the nature of the portfolio. It is also possible to select funds which are available in Individual Savings Accounts or conform to the CAT standard.

Fund supermarket
A company that sells funds over the internet. Fund groups and stockbrokers have both set up fund supermarkets.

Fund switching
The transfer of money from one fund to another within a fund family.

Futures contract
A contract that stipulates that the buyer must pay an agreed upon price in the future to buy an agreed asset.

G7 (Group of 7)
Refers to the seven leading industrial countries whose finance ministers meet to discuss economic and political issues affecting the group. The G7 consists of Britain, America, Canada, Japan, Germany, France and Italy. G8 includes Russia.

GARP
Stands for Growth At a Reasonable Price. An investment strategy which involves trying to find fast growing companies trading at attractive stockmarket valuations.

GBX
GBX stands for Great British Pence.

GDR (Global Depositary Receipt)
A GDR is comparable to an ADRs B131. This negotiable certificate is held in a country’s local banks representing title to a certain number of foreign shares. Non-domestic companies wishing to list on the local exchange must offer GDRs.

Gearing
A ratio used to describe the use of debt as well as equity to fund a company: Gearing (%) = 100 * (Net borrowings (Total borrowings less cash and near cash assets) / shareholders funds)

General ledger
A book used to record all of a company’s financial transactions.

Gilts
A UK government issued bond. Because a gilt is guaranteed by the government it is generally one of the safest investments in the UK.

Global fund
A fund that invests in UK and international shares or bonds.

Gross domestic product (GDP)
The total amount of final goods and services produced in a country.

Growth
Refers to an investment strategy that selects shares with a record of past growth and the potential for future increases in capital value. Usually, that means companies with high growth in earnings or expected earnings, and hence the potential for big increases in the stock price. Shares in growth companies are usually expensive, relative to the internal or fundamental value of the company. If the company fails to deliver growth, the price can fall dramatically. Growth investing is usually considered more risky than value investing.

Growth & income fund
A fund where the fund manager seeks to identify investments in shares that will provide both long-term growth and dividend income.

Growth stocks
A stock with a low price to earning ratio but high EPS growth.

H-shares
Mainland Chinese companies listed on the Hong Kong Stock Exchange.

Hang Seng
The main index of the largest companies on the Hong Kong stockmarket.

Hard asset
A valuable tangible item owned by an entity.

Hardware
Proportion of portfolio invested in manufacturers of computer equipment, communication equipment, semiconductors and components. Examples Include Siemens, Cisco and Ericsson.

Health
Proportion of portfolio invested in companies operating in areas such as pharmaceutical manufacturing, medical-instruments makers and pharmaceutical wholesalers. An example of a company in this sector is GlaxoSmithKline.

Healthcare
Proportion of portfolio invested in biotechnology, pharmaceuticals, research, services, home health, hospitals, medical equipment and supplies, and assested living companies. Examples include Fresenius, Aventis and GlaxoSmithKline.

Hedge
Consists of taking a position to minimise risk of price movements and offset the potential losses of an asset.

Hedge fund
A portfolio which makes extensive use of unconventional investment tools such as derivatives.

Hex
A Finnish system for numbering financial instruments.

High
The highest price paid for a stock during a specific period of time. The high for the day quoted in the newspapers refers to the highest price paid on the previous day.

High yield bond
Corporate debt with a relatively high risk of default. Also known as a junk bond.

High yield fund
A bond fund investing primarily in securities with lower investment grade or “junk” ratings.

Holding-period return
The return on asset during the time in which it is held. (Present Value + Gains-Initial Value) / (Initial Value).

IA Sectors

The Investment Association (IA) was formerly called the Investment Management Association (IMA).
Funds principally targeting income – Immediate Income

UK Gilts
Funds which invest at least 95% of their assets in sterling denominated (or hedged back to Sterling) Triple AAA rated, government backed securities, with at least 75% invested in UK government securities (Gilts).

UK Index Linked Gilts
Funds which invest at least 90% of their assets in UK Index Linked Government securities (Gilts)

UK Corporate Bond
Funds which invest at least 80% of their assets in Sterling-denominated (or hedged back to Sterling), Triple BBB minus or above bonds (as measured by Standard & Poors or an equivalent external rating agency – (Moodys Baa or above)). This excludes convertibles.

UK Other Bond
Funds investing at least 80% of their assets in Sterling denominated (or hedged back to Sterling), and at least 20% of their assets in below BBB minus bonds (as measured by Standard and Poor’s or an equivalent external rating agency), convertibles and income producing preference shares.

Global Bonds
Funds which invest at least 80% of their assets in fixed interest stocks. All funds which contain more than 80% fixed interest investments are to be classified under this heading regardless of the fact that they may have more than 80% in a particular geographic sector, unless that geographic area is the UK, when the fund should be classified under the relevant UK heading.

UK Equity & Bond Income
Funds which invest at least 80% of their assets in the UK, between 20% and 80% in UK fixed interest securities and between 20% and 80% in UK equities. These funds aim to have a yield of 120% or over of the FT All Share Index.

Funds principally targeting income – Growing Income

UK Equity Income
Funds which invest at least 80% in UK equities and which aim to achieve a historic yield on the distributable income in excess of 110% of the FTSE All Share yield at the fund’s year end.

UK Equity Income and Growth
Funds which invest at least 80% of their assets in UK equities, aim to have a historic yield of between 90-110% of the yield of the FTSE All Share Index at the fund’s year end and which aim to produce a combination of both income and growth.

Funds principally targeting capital – Capital Growth/Total Return

UK Zeros
Funds investing at least 80% of their assets in Sterling denominated (or hedged back to Sterling), and at least 80% of their assets in zero dividend preference shares or equivalent instruments (i.e. not income producing). This excludes preference shares which produce an income.

UK All Companies
Funds which invest at least 80% of their assets in UK equities which have a primary objective of achieving capital growth.

UK Smaller Companies
Funds which invest at least 80% of their assets in UK equities of companies which form the bottom 10% by market capitalisation.

Japan
Funds which invest at least 80% of their assets in Japanese equities.

Japanese Smaller Companies
Funds which invest at least 80% of their assets in Japanese equities of companies which form the bottom 30% by market capitalisation.

Asia Pacific including Japan
Funds which invest at least 80% of their assets in Asia Pacific equities including a Japanese content. The Japanese content must make up less than 80% of assets.

Asia Pacific excluding Japan
Funds which invest at least 80% of their assets in Asia Pacific equities and exclude Japanese securities.

North America
Funds which invest at least 80% of their assets in North American equities.

North American Smaller Companies
Funds which invest a least 80% of their assets in North American equities of companies which form the bottom 20% by market capitalisation.

Europe including UK
Funds which invest at least 80% of their assets in European equities. They may include UK equities, but these must not exceed 80% of the fund’s assets.

Europe excluding UK
Funds which invest at least 80% of their assets in European equities and exclude UK securities.

European Smaller Companies
Funds which invest at least 80% of their assets in European equities of companies which form the bottom 20% by market capitalisation in the European market. They may include UK equities, but these must not exceed 80% or the fund’s assets. (‘Europe’ includes all countries in the MSCI/FTSE pan European indices.)

Specialist Sectors

Absolute Return
Funds managed with the aim of delivering absolute (i.e. more than zero) returns in any market conditions. Typically funds in this sector would normally expect to deliver absolute (more than zero) returns on a 12 months basis.

Property
Funds which predominantly invest in property. In order to invest “predominantly” in property, funds should either:

• invest at least 60% of their assets directly in property; or

• invest at least 80% of their assets in property securities; or

• when their direct property holdings fall below the 60% threshold for a period of more than 6 months, invest sufficient of the balance of their assets in property securities to ensure that at least 80% of the fund is invested in property, whereupon it becomes a hybrid fund.

IFRS
International Financial Reporting Standards have the goal of creating international standards for business accounting in order to create uniformity across borders.

IMA Sectors

Funds principally targeting income – Immediate Income

UK Gilts

Funds which invest at least 95% of their assets in sterling denominated (or hedged back to Sterling) Triple AAA rated, government backed securities, with at least 75% invested in UK government securities (Gilts).

UK Index Linked Gilts

Funds which invest at least 90% of their assets in UK Index Linked Government securities (Gilts)

UK Corporate Bond

Funds which invest at least 80% of their assets in Sterling-denominated (or hedged back to Sterling), Triple BBB minus or above bonds (as measured by Standard & Poors or an equivalent external rating agency – (Moodys Baa or above)). This excludes convertibles.

UK Other Bond

Funds investing at least 80% of their assets in Sterling denominated (or hedged back to Sterling), and at least 20% of their assets in below BBB minus bonds (as measured by Standard and Poor’s or an equivalent external rating agency), convertibles and income producing preference shares.

Global Bonds

Funds which invest at least 80% of their assets in fixed interest stocks. All funds which contain more than 80% fixed interest investments are to be classified under this heading regardless of the fact that they may have more than 80% in a particular geographic sector, unless that geographic area is the UK, when the fund should be classified under the relevant UK heading.

UK Equity & Bond Income

Funds which invest at least 80% of their assets in the UK, between 20% and 80% in UK fixed interest securities and between 20% and 80% in UK equities. These funds aim to have a yield of 120% or over of the FT All Share Index.

Funds principally targeting income – Growing Income

UK Equity Income

Funds which invest at least 80% in UK equities and which aim to achieve a historic yield on the distributable income in excess of 110% of the FTSE All Share yield at the fund’s year end.

UK Equity Income and Growth

Funds which invest at least 80% of their assets in UK equities, aim to have a historic yield of between 90-110% of the yield of the FTSE All Share Index at the fund’s year end and which aim to produce a combination of both income and growth.

Funds principally targeting capital – Capital Growth/Total Return

UK Zeros

Funds investing at least 80% of their assets in Sterling denominated (or hedged back to Sterling), and at least 80% of their assets in zero dividend preference shares or equivalent instruments (i.e. not income producing). This excludes preference shares which produce an income.

UK All Companies

Funds which invest at least 80% of their assets in UK equities which have a primary objective of achieving capital growth.

UK Smaller Companies

Funds which invest at least 80% of their assets in UK equities of companies which form the bottom 10% by market capitalisation.

Japan

Funds which invest at least 80% of their assets in Japanese equities.

Japanese Smaller Companies

Funds which invest at least 80% of their assets in Japanese equities of companies which form the bottom 30% by market capitalisation.

Asia Pacific including Japan

Funds which invest at least 80% of their assets in Asia Pacific equities including a Japanese content. The Japanese content must make up less than 80% of assets.

Asia Pacific excluding Japan

Funds which invest at least 80% of their assets in Asia Pacific equities and exclude Japanese securities.

North America

Funds which invest at least 80% of their assets in North American equities.

North American Smaller Companies

Funds which invest a least 80% of their assets in North American equities of companies which form the bottom 20% by market capitalisation.

Europe including UK

Funds which invest at least 80% of their assets in European equities. They may include UK equities, but these must not exceed 80% of the fund’s assets.

Europe excluding UK

Funds which invest at least 80% of their assets in European equities and exclude UK securities.

European Smaller Companies

Funds which invest at least 80% of their assets in European equities of companies which form the bottom 20% by market capitalisation in the European market. They may include UK equities, but these must not exceed 80% or the fund’s assets. (‘Europe’ includes all countries in the MSCI/FTSE pan European indices.)

Specialist Sectors

Absolute Return

Funds managed with the aim of delivering absolute (i.e. more than zero) returns in any market conditions. Typically funds in this sector would normally expect to deliver absolute (more than zero) returns on a 12 months basis.

Property

Funds which predominantly invest in property. In order to invest “predominantly” in property, funds should either:

• invest at least 60% of their assets directly in property; or
• invest at least 80% of their assets in property securities; or
• when their direct property holdings fall below the 60% threshold for a period of more than 6 months, invest sufficient of the balance of their assets in property securities to ensure that at least 80% of the fund is invested in property, whereupon it becomes a hybrid fund.

Inception date
The Inception date is the date the fund was formed and became available for sale to unit holders.

Income ratio
The percentage of current income earned per share. It is calculated by dividing the fund´s net investment income by its average NAV. (The net investment income is the total income of the fund, less operating expenses.) The income ratio indicates how much of the fund´s total return comes from income. A high income ratio suggests that the underlying fund depends on dividend distributions or coupon payments to fill out its total return while a low income ratio suggests that capital appreciation is very likely responsible for the fund´s total return.

Income statement
A financial statement that represents a company’s profitability and the elements that combine to produce income during a specific period.

Income units
A holding in a unit trust that pays out on a regular basis any dividends or interest your investment makes.
Broadly speaking, this type of investment is more suited to people who wish to invest in order to generate a stream of income (and these dividends are taxable like other dividends).

Increase/decrease in cash in the year
Change in the cash position over the accounting year: Increase in cash in the year = Cash from operating activities + investment returns and financing + taxation + capital expenditure and other + financing.

Independent financial adviser
An adviser who is legally obliged to advise investors on funds from the full range of management groups. The opposite is a tied agent who can only advise on the funds of one group. This system of advice is currently under review by the Financial Services Authority.

Index
A collection of securities chosen to attempt to represent a specific investment area. Common ones include the Dow Jones Industrial Average, the S&P 500 and the FTSE 100. Many funds choose to benchmark themselves against an index as a performance measure. Note that it is not necessarily the same index that Morningstar may have chosen to benchmark the fund.

Index fund
A fund that tracks a particular index and attempts to match the returns of that index. The fund manager typically studies the index´s movements to ensure the fund´s securities are representative of the index with the sectors matched proportionally. Sometimes called a Tracker fund.

Individual savings account (ISA)
A form of tax shelter which can protect fund investors from capital gains tax and income tax within certain annual allowances.

Industrial Materials
Proportion of portfolio invested in aerospace and defence firms, and companies that provide or manufacture chemicals, machinery, building materials and commodities. Examples include ABB, Air Liquide and EADS.

Inflation
The level at which wages and prices increase over a certain period of time, usually a year. In the UK, this is measured by the Retail Price Index (RPI) and the index of National Average Earnings (NAE).

Information Ratio
Information ratio is a risk-adjusted performance measure. The information ratio is a special version of the Sharpe Ratio in that the benchmark doesn’t have to be the risk-free rate.

Initial
The smallest amount permitted to start an investment in the fund.

Initial charge
The fee payable to a management company upon the purchase of units to pay for administration, marketing of the fund and commission to the adviser(where applicable).

Initial margin
The percentage of an investment that is required to be paid by an investor’s current cash or securities. A lower initial margin indicates a higher risk and a higher potential return.

Initial public offering (IPO)
The initial offering of shares to the public by a company which is listing itself on a recognised exchange, such as the London Stock Exchange, for the first time.

Inland Revenue
The UK government department which assesses and collects taxes on income, profits, gains and inheritance.

Insider trading
The act of illegally trading based on insights gained from access to inside information.

Institutional investor
A generic term for an organisation that invests large sums of money, often other people’s savings in securities and funds. Examples of institutional investors include pension funds, insurance companies, investment companies and endowment funds.
Institutional investors are covered by fewer protective regulations because it is assumed that they are more knowledgeable and better able to protect themselves. They account for a majority of overall volume traded and the value of shares held.

Instruments %
The percentage breakdown by type of issuer of bond holdings.

Intangibles
An asset that has no physical presence (e.g. brand names, patents). Intangible assets lack physical form, and their market value is not easily obtained: they are usually unique and hence not traded in the marketplace. Because price signals cannot be used to value an intangible asset, complicated valuation techniques often must be employed.

Interbank rate
The rate at which banks loan and borrow from each other in the short term.

Interest Cover
(Normalised Pre-tax Profit + Interest Payable)/Interest Payable = X Times

Interim
The results covering part of the company’s financial year, usually the first six months, and the dividend paid to shareholders out of the profits, or earnings, of that period.

Internal rate of return (IRR)
A measure to find and compare the profitability of projects used often in capital budgeting.

Intrinsic value
Value of an asset based on its tangible and intangible assets rather than market or book value also known as fundamental value.

Investment grade
A bond that has a low level of risk and is safe to invest in based on bond ratings by Moody’s and Standard and Poor’s.

Investment income
Income from assets not directly related to a company’s business.

Investment income
Income from all investments including, capital gains, dividends and interest payments.

Investment Management Association
The trade body that represents the groups which run open ended investment companies and unit trusts. Formerly known as the Association of Unit Trusts and Investment Funds.

Investment manager
See fund manager.

Investment objective
A fund manager´s stated goal for the money invested in his fund, such as capital growth or steady income flows to investors.

Investment returns and financing
Investment returns and financing = Net interest + investment receipts + ordinary dividends paid + preferences + minorities. 

Investment trust
A collective investment that invests in shares of companies or fixed income securities. Its own share price does not necessarily reflect the value of its assets. When the net asset value (NAV) per share exceeds the share price, it is trading at a discount and when the NAV/share falls below the share price, it is trading at a premium.

Investor relations
A department within a public company that distributes information about the company and its financial performance to existing and potential shareholders.

ISA
Individual Savings Account. A form of tax shelter which can protect fund investors from capital gains tax and income tax subject to various annual allowances.

ISA Funds
ISA Funds are those open-end funds that are available for sale in the UK and are eligible to be held as an investment within an Individual Savings Account (ISA) or New Individual Savings Account (NISA). Investments within a NISA wrapper are exempt from capital gains and income taxes.

ISIN
Stands for International Securities Identification Number (ISIN). A coding system used to distinguish securities.

Italian Stock Exchange (ISE)
The Italian Stock Exchange is the result of the unification of Italy’s 10 national exchanges in 1991 led to the formation of this exchange. Based in Milan, the main indexes are the MIB, MIBTEL, and the MIB 30.

Japan
Proportion of portfolio invested in Japan.

Johannesburg Stock Exchange (JSE)
South Africa’s only stock exchange, heavily focused on gold and mining stocks. Many South African companies are listed on the London Stock Exchange.

Junior issue
Any company issue (i.e. debt or equity) which has a lower priority to claims on a company’s assets when a company goes bankrupt and is forced to liquidate.

Junk bond
Corporate debt that offers investors a high rate of interest because of the perceived higher risk of default. Also known as high yield bonds.

Key ratio
A financial ratio that best summarises and illustrates the position of a company.

Lagging economic indicators
Statistical measues that tend to follow the general pattern of economic activity in a country. For example, the unemployment rate tends to fall once an economic recovery is under way.

Large cap
The proportion of a fund invested in larger companies [large caps]. Large cap companies are defined as those in the top 5% of capitalisation within their global region.

Largest region
The geographic area making up the biggest proportion of a fund such as Japan, North America or the UK.

Largest sector
The stockmarket sector making up the biggest proportion of a fund such as financials, services or technology.

Last Close
The market price for the share at the end of the last day of trading.

Leading economic indicators
Statistical measures that give some indication of the likely future movement of an economy. For example, advertising spending tends to give an indication of future trends.

Legal type
The structure of a fund based on the law in which it is domiciled. For example, these can include Fonds Commun de Placement (FCP) in Luxembourg, Open-Ended Investment Companies (OEICs) in the UK and Société d’Investissement à Capital Variable (SICAVs) in continental Europe.

Leverage
A way to finance an investment with borrowings in order to maximise potential returns but also increases risk of large losses.

Leveraged buyout
An acquisition of a company largely financed by borrowings, allowing a company to acquire another without as significant a capital commitment.

Life cycle fund
Funds which are designed to modify their holdings as the investor ages so that they are appropriate to different life stages. For example, an older person is likely to want a more conservative asset allocation than a younger one.

Limit order
An order to buy or sell a number of shares at a certain price with a given time limit placed with a broker.

Limited liability
Exists when liability can be no greater than the amount invested by the owner or partner.

Liquidity
A measure of how easy it is to buy and sell shares without notably moving the share price.

List Transactions
Chose the fund holding from the drop down menu to choose which ones are displayed.

Lock-in period
The time period after an IPO when the lead underwriter restricts insiders at the newly public company from selling their shares. Usually lasts 180 days.

London Interbank Offered Rate (LIBOR)
The interest rate that the largest most creditworthy international banks charge each other for loans. The LIBOR rate is typically 12.5 basis points above LIBID (London Interbank Bid Rate).

London Stock Exchange (LSE)
One of the largest stock exchanges in the world. The most frequently quoted index on the LSE is the FTSE 100.

Low
The lowest price of a stock for a certain period. The low for the day quoted in the newspapers refers to the lowest price paid for a specific stock on the previous day.

Lump sum investment
Investing a sum in one go rather than spreading it over monthly payments. The opposite of regular saving.

Management charge
A fee, usually expressed as a percentage, charged by the investment manager to cover the costs of running the fund. It is deducted from the net assets of the fund.

Management charge
A fee, usually expressed as a percentage, charged by the investment manager to cover the costs of running the fund. It is deducted from the net assets of the fund.

Management of liquid resources
Movements in all current asset investments and cash.

Manager information
Details on the fund´s manager.

Manager name
Name of lead manager.

Manager start date
Date the manager began running the fund.

Margin
Operating margin shows trading profit as a percentage of sales, or total trading revenues. Operating margin (%) = 100 * trading profit / total sales.

Market cap. at B/S date
The total Stock Market value of the company’s shares (the total number of shares issued to shareholders multiplied by the share price) at the time of the balance sheet year-end.

Market Capitalization

Average Market Cap (Funds) The average market capitalization of a fund’s equity portfolio gives you a measure of the size of the companies in which the fund invests. Market capitalization is calculated by multiplying the number of a company’s shares outstanding by its price per share. At Morningstar we calculate this figure by taking the geometric mean of the market capitalizations of the stocks a fund owns.

For the capitalization breakdown, giant-cap stocks are defined as those that account for the top 40% of the capitalization of each style zone; large-cap stocks represent the next 30%; mid-cap stocks represent the next 20%; small-cap stocks represent the next 7% and micro-cap stocks represent the smallest 3%. For value-growth scoring, giant-cap stocks are included with the large-cap group for that style zone, and micro-caps are scored against the small-cap group for that style zone.

Market maker
The Stock Exchange firms that a stockbroker deals with in completing a transaction. The market middleman from whom you buy, or to whom you sell, the shares in the company.

Market order
An order to buy or sell a security immediately, at the best available price. The majority of orders executed on the exchanges are market orders.

Market price
The price at which the share can currently be traded in the market.

Market risk
The chance that an entire group of investments will lose value (as opposed to one particular stock falling in price). Market risk is a danger because there is always the chance you’ll have to sell an investment when the market is down.

Market timing
An investment strategy in which investors switch in and out of securities or between types of funds in the hopes of benefiting from various economic and technical indicators that are thought to presage market moves.

Marketable securities
Securities typically with maturities of less than a year that can be easily sold on the market.

Maturity
The date on which the principal of a debt instrument, i.e. a bond, is due to be paid. For example, the maturity date for a five-year bond issued on 1 November 2000 would be 1 November 2005.

Maxi-ISA
An ISAs (Individual Savings Accounts) in which you are allowed to place your maximum ISA allowance (currently £7000) with one ISA plan manager. For example, rather than splitting your savings between a cash mini-ISA, an mini-insurance ISA and/or a stock-and-shares mini-ISA, you choose one fund that will receive your entire allowance. For more details, please see Morningstar´s ISA Funds section.

Mean Return
The annualised perfomance of a fund over three years.

Media
Proportion of portfolio invested in companies that own and operate broadcast networks and those that create content or provide it to other media companies, Examples include Time Warner, Pearson and TF1.

Median Mkt Cap $Mil
To determine median market capitalisation of a fund, the companies in which it is invested are ranked from biggest to smallest. The median is size of the company in the middle of the list if the number of companies is odd. If the number of companies is even then the median is the average of the market capitalisation of the two middle firms.

Median Value
The middle value of a group of values. For example, in the series 1, 4, 7, 8, 10, 11, 23, 45, and 52, 10 is the median.

Merger
The arrangement by which two companies unite without one attaining direct control over the other.

MEX
The Financial Times’ coding system for investment funds.

Mid cap
The proportion of the fund invested in companies categorised as middle capitalisation companies [mid caps]. A determination of large, mid or small cap is made by separating all of the shares into 10 global regions. The largest 5% are large caps, the next 15% are mid caps and the bottom 80% are small caps.

Mid Price
The normal price quoted in the press for the company’s shares, being the mid-point in the bid-offer spread.

Middle East and Africa
Proportion of portfolio invested in African and Middle Eastern countries such as Egypt, Morocco, Nigeria, South Africa and Turkey.

Mini-ISA
An ISAs (Individual Savings Accounts) which focuses on only one of the ISA´s three elements (shares, cash, or insurance). Individuals are allowed to put £3000 in a mini-cash ISA, £1000 in a mini-insurance ISA and the remainder in a mini-shares ISA but purchase of a mini ISA prevents purchase of a maxi-ISA in that same tax year. For more details, please see Morningstar´s ISA Funds section.

Minimum additional investment
The smallest lump sum amount that a new investor can put into a fund.

Minimum initial investment
The smallest lump sum amount that a new investor can put into a fund.

Minimum lump sum investment
The smallest amount of money an investor can put into a fund. Typically, this can either be to open the account or for topping up the account.

Minimum purchase
The smallest amount that can be invested in the fund.

Minimum savings plan
The smallest sum that a regular investor can put into a fund.

Minorities
When a company owns a minority shareholding in another company the accounts will show the proportion of net assets and profits which are attributable to the company rather than to the shareholders of the company with the majority shareholding.

Minority interests
A calculation found on the consolidated financial statements of a company, where the parent company’s figures are combined with those of its subsidiaries. All of the subsidiary’s assets and liabilities are combined in the consolidated financial statements, even if the parent company does not own 100% of a subsidiary’s stock. The part not owned by the parent company is the minority interest and is shown as a liability on the balance sheet and subtracted in the earnings statement.

Mkt Sensitive
“Market Sensitive.” Refers to information that the market is likely to react to, consequently the market price of the asset may be affected by such information.

Moat size
The measure of the competitive barrier, if any, that gives a company an advantage over its rivals and allows it to generate above-average returns on invested capital. Four major types of economic moats are:

1) high customer switching costs;

2) economies of scale;

3) intangible assets such as brands or patents;

4) the network effect.

Morningstar divides stocks into three categories according to moat size:

1) wide moat (companies with the strongest competitive advantage);

2) narrow moat (those with some competitive advantage);

3) no moat (those with no sustainable competitive advantage).

Modern Portfolio Theory (MPT)
Refers to the body of innovations in portfolio management from the 1950s. The central plank of MPT is the concept of diversification – the fact that a well chosen group of assets can achieve a higher rate of return with a lower level of risk than any asset taken in isolation. Another important concept is that of Market Risk. A fund´s risk can be split into two parts: on the one hand, variations due to movements in the stockmarket as a whole (described by Beta), on the other hand, variations independent of broad market movements (specific risk). Alpha, Beta, R-squared, Correlation, Volatility are statistics usually associated with MPT.

Modified duration
A measure of the sensitivity of bond prices to small changes in yield.

Monetary Policy Committee
The committee of the Bank of England that sets UK interest rates.

Morningstar Analyst Rating™
The Morningstar  Analyst Rating™ for funds is the summary expression of our forward-looking analysis of a fund. Morningstar OBSR Analyst Ratings are assigned globally on a five-tier scale running from Gold to Negative.

The top three ratings, Gold, Silver and Bronze, all indicate that our analysts think highly of a fund; the difference between them corresponds to differences in the level of analyst conviction in a fund’s ability to outperform its benchmark and peers through time, within the context of the level of risk taken. The Analyst Rating does not express a view on a given asset class or peer group; rather, it seeks to evaluate each fund within the context of its objective, an appropriate benchmark, and peer group.

Gold: These funds are our highest-conviction recommendations and stand out as best of breed for their investment mandate. By giving a fund a Gold rating, we are expressing an expectation that it will outperform its relevant performance benchmark and/or peer group within the context of the level of risk taken over the long term (defined as a full market cycle or at least five years). To earn a Gold rating, a fund must distinguish itself across the five pillars that are the basis for our analysis. That is, a Gold-rated fund should have a seasoned, talented, and successful manager or management team; a sound, thoughtful process that has been executed skilfully and consistently; a portfolio that’s in harmony with the stated process and that’s capable of delivering a reward that compensates investors for the risks it takes; reasonable expenses; and a strong parent organisation that is focused on responsible stewardship of investor assets.

Silver: Funds that fall in this category are high-conviction recommendations. They have notable advantages across several, but perhaps not all, of the five pillars. With those fundamental strengths, we expect these funds will outperform their relevant performance benchmark and/or peer group within the context of the level of risk taken over the long term (defined as a full market cycle or at least five years). While these are worthy funds with many positive features, they don’t necessarily rise to the standard of best in breed. Funds rated Silver may be working their way up our list of recommended picks as we gain more familiarity and conviction in key pillars or working their way down based on degradation within specific pillars.

Bronze: These funds have advantages that clearly outweigh any disadvantages across the pillars, giving us the conviction to award them a positive rating. As is the case with any fund receiving a positive rating, we expect these funds to beat their relevant performance benchmark and/or peer group within the context of the level of risk taken over a full market cycle (or at least five years). Funds rated Bronze may be working their way up the ratings scale as we gain more familiarity and conviction in key pillars or working their way down based on degradation within specific pillars.

Neutral: These are funds in which we don’t have a strong positive or negative conviction. In our judgment, they aren’t likely to deliver standout returns, but they aren’t likely to seriously underperform their relevant performance benchmark and/or peer group either. A fund that is overly benchmark-conscious could receive this rating as long as its fees are reasonable enough to give it a chance of keeping up with the average fund in the category or a competing index fund. A promising but unproven fund may also receive this rating until we see further evidence that it has the potential to outperform.

Negative: These funds possess at least one flaw that we believe is likely to significantly hamper future performance, such as high fees or an unstable management team. Because of these faults, we believe these funds are inferior to most competitors and will likely underperform their relevant performance benchmark and/or peer group, within the context of the level of risk taken, over a full market cycle. For example, a fund that combines an overly benchmark-conscious strategy with high fees could receive this rating because its strategy lends itself to underperformance.

Morningstar Bond Fund Style Box
A graphical depiction of the two essential risk factors in any bond fund – interest rate exposure and credit exposure. The Style Box combines two dimensions, interest rate sensitivity and credit quality, which are measured as either high, medium or low, resulting in nine possible style combinations. The Style Box gives an immediate picture of a fund´s focus and enables investors to perform simple but essential portfolio allocation decisions. For further details and an explanation of the calculation, please refer to the Morningstar Style Box section of Our Methodology on the About Us page.

Morningstar Category
Funds are grouped into categories according to their actual investment style, not merely their stated investment objectives, nor their ability to generate a certain level of income. To ensure homogeneous groupings, Morningstar normally allocates funds to categories on the basis of their portfolio holdings. Several portfolios are taken into account to ensure that the fund´s real investment stance is taken into account.

Europe: Single Country

Austria Equity

Austria Equity funds invest primarily in the equities of companies based in Austria. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Austrian equities.

Morningstar Category Index: MSCI Austria NDTR

Belgium Equity

Belgium Equity funds invest primarily in the equities of companies based in Belgium. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Belgian equities.

Morningstar Category Index: MSCI Belgium NDTR

Denmark Equity

Denmark Equity funds invest primarily in Danish companies. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets Danish equities.

Morningstar Category Index: MSCI Denmark NDTR

Eurozone Single Country Equity

Eurozone Single Country Equity funds invest primarily in the equities of companies based in Eurozone countries for which there are no distinct Morningstar categories (such countries have too few funds to support a distinct category). Currently, there are only two countries for which this is the case: Greece and Portugal. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Greek or Portuguese equities.

Morningstar Category Index: MSCI EMU NDTR

Finland Equity

Finland Equity funds invest primarily in the equities of companies based in Finland. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Finnish equities.

Morningstar Category Index: MSCI Finland NDTR

France Large-Cap Equity

France Large-Cap Equity funds invest primarily in the equities of large-cap French companies. Equities in the top 70% of the European equity market (including the UK) are defined as large-cap. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in French equities.

Morningstar Category Index: MSCI France NDTR

France Small/Mid-Cap Equity

France Small/Mid-Cap Equity funds invest primarily in the equities of small-cap and mid-cap French companies. Their holdings typically fall in the bottom 30% of the capitalisation of the European equity market (including the UK). The funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in French equities.

Morningstar Category Index: MSCI France Sm-Cap NDTR

Germany Large-Cap Equity

Germany Large-Cap Equity funds invest primarily in the equities of large-cap German companies. Equities in the top 70% of the European equity market (including the UK) are defined as large-cap. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in German equities.

Morningstar Category Index: MSCI Germany NDTR

Germany Small/Mid-Cap Equity

Germany Small/Mid-Cap Equity funds invest primarily in the equities of small-cap and madcap German companies. Their holdings typically fall in the bottom 30% of the capitalization of the European equity market (including the UK). The funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in German equities.

Morningstar Category Index: MSCI Germany Sm-Cap NDTR

Italy Equity

Italy Equity funds invest primarily in the equities of companies based in Italy. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Italian equities.

Morningstar Category Index: MSCI Italy NDTR

Netherlands Equity

Netherlands Equity funds invest primarily in the equities of companies based in the Netherlands. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Dutch equities.

Morningstar Category Index: MSCI Netherlands NDTR

Norway Equity

Norway Equity funds invest primarily in Norwegian companies. These funds invest at least 75% of total assets in equities and invest at least 75% of equity assets in Norwegian equities.

Morningstar Category Index: Mutual Fund Index Linked / TOTX

Russia Equity

Russia Equity funds invest primarily in the equities of companies based in Russia. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Russian equities.

Morningstar Category Index: MSCI Russia NDTR

Spain Equity

Spain Equity funds invest primarily in the equities of companies based in Spain. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Spanish equities.

Morningstar Category Index: MSCI Spain NDTR

Sweden Large-Cap Equity

Sweden Large-Cap Equity funds invest primarily in the equities of large-cap Swedish companies. Equities in the top 70% of the capitalisation of the European equity market (including the UK) are defined as large-cap. These funds invest at least 75% of total assets in equities and invest at least 75% of equity assets in Swedish equities.

Morningstar Category Index: MSCI Sweden NDTR

Sweden Small/Mid-Cap Equity

Swedish Small/Mid-Cap Equity funds invest primarily in the equities of small-cap and madcap Swedish companies. Their holdings typically fall in the bottom 30% of the capitalization of the European equity market (including the UK). These funds invest at least 75% of their total assets in equities, and invest at least 75% of equity assets in Swedish equities.

Morningstar Category Index: MSCI Sweden Small Cap NDTR

Sweden/Global Equity

Sweden/Global Equity funds invest globally in equities but have a large position in Swedish equities. Typically funds in this category have between 30 and 75% of total assets invested in Swedish equities.

Morningstar Category Index: 50% MSCI The World Index Free NDTR, 50% MSCI Sweden NDTR

Switzerland Large-Cap Equity

Switzerland Large-Cap Equity funds invest primarily in the equities of large-cap Swiss companies. Equities in the top 70% of the European equity market (including the UK) are defined as large-cap. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Swiss equities.

Morningstar Category Index: MSCI Switzerland NDTR

Switzerland Small/Mid-Cap Equity

Switzerland Small/Mid-Cap Equity funds invest primarily in the equities of small-cap and mid-cap Swiss companies. Their holdings typically fall in the bottom 30% of the capitalisation of the European equity market (including the UK). These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Swiss equities.

Morningstar Category Index: MSCI Switzerland Sm-Cap NDTR

UK Large-Cap Blend Equity

UK Large-Cap Blend Equity funds are fairly representative of the overall UK equity market in size, growth rates and price. Equities in the top 70% of the European equity market (including the UK) are defined as large-cap. The blend style is assigned to funds where neither growth nor value characteristics predominate. These funds tend to invest across the spectrum of UK industries. At least 75% of total assets are invested in equities and at least 75% of equity assets are invested in UK equities.

Morningstar Category Index: FTSE 100

UK Large-Cap Growth Equity

UK Large-Cap Growth Equity funds invest primarily in the equities of large-cap UK companies that are more expensive or projected to grow faster than other large caps in Europe (including the UK). Equities in the top 70% of the capitalisation of the European equity market (including the UK) are defined as large-cap. Growth is defined based on fast growth (high growth rates for earnings, sales, book value, and cash flow) and high valuations (high price ratios and low dividend yields). Most of these funds focus on companies in rapidly expanding industries. At least 75% of total assets are invested in equities and at least 75% of equity assets are invested in UK equities.

Morningstar Category Index: MSCI United Kingdom Growth NDTR

UK Large-Cap Value Equity

UK Large-Cap Value Equity funds invest primarily in the equities of large-cap UK companies that are less expensive or growing more slowly than other large-caps in Europe (including the UK). Shares in the top 70% of the capitalisation of the European equity market (including the UK) are defined as large-cap. Value is defined based on low valuations (low price ratios and high dividend yields) and slow growth (low growth rates for earnings, sales, book value, and cash flow). At least 75% of total assets are invested in equities and at least 75% of equity assets are invested in UK equities.

Morningstar Category Index: MSCI United Kingdom Value NDTR

UK Mid-Cap Equity

Some UK Mid-Cap Equity funds invest in equities of all sizes, thus leading to a mid-cap profile, but others focus on mid-cap companies. The European mid-cap range represents the 20% of the European equity market (including the UK) that falls between small caps (the bottom 10% of capitalisation) and large caps (the top 70% of capitalisation). At least 75% of total assets are invested in equities and at least 75% of equity assets are invested in UK equities.

Morningstar Category Index: FTSE 250 Ex Inv

UK Small-Cap Equity

UK Small-Cap Equity funds invest primarily in the equities of small-cap UK companies. Equities in the bottom 10% of the European equity market (including the UK) are defined as small-cap. At least 75% of total assets are invested in equities and at least 75% of equity assets are invested in UK equities.

Europe: Regional

Emerging Europe Equity

Emerging Europe Equity funds invest primarily in the equities of companies based in Emerging Europe. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Emerging Europe equities.

Morningstar Category Index: MSCI EM Eastern Europe ND

Emerging Europe ex-Russia Equity

Emerging Europe ex-Russia Equity funds invest primarily in the equities of companies based in Emerging Europe, excluding Russia. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in non-Russian Emerging Europe equities.

Europe Large-Cap Blend Equity

Europe Large-Cap Blend Equity funds are fairly representative of the overall European equity market (including the UK) in size, growth rates and price. Equities in the top 70% of the European equity market (including the UK) are defined as large-cap. The blend style is assigned to funds where neither growth nor value characteristics predominate. These funds tend to invest across the spectrum of European industries. At least 75% of total assets are invested in equities and at least 75% of equity assets are invested in European equities.

Morningstar Category Index: MSCI Europe NDTR

Europe Large-Cap Growth Equity

Europe Large-Cap Growth Equity funds invest primarily in the equities of large-cap European companies that are more expensive or projected to grow faster than other European large caps. Equities in the top 70% of the capitalisation of the European equity market (including the UK) are defined as large-cap. Growth is defined based on fast growth (high growth rates for earnings, sales, book value, and cash flow) and high valuations (high price ratios and low dividend yields). Most of these funds focus on companies in rapidly expanding industries. At least 75% of total assets are invested in equities and at least 75% of equity assets are invested in European equities.

Morningstar Category Index: MSCI Europe Growth NDTR

Europe Large-Cap Value Equity

Europe Large-Cap Value Equity funds invest primarily in the equities of large-cap European companies that are less expensive or growing more slowly than other European large caps. Equities in the top 70% of the capitalization of the European equity market (including the UK) are defined as large-cap. Value is defined based on low valuations (low price ratios and high dividend yields) and slow growth (low growth rates for earnings, sales, book value, and cash flow). At least 75% of total assets are invested in equities and at least 75% of equity assets are invested in European equities.

Europe Mid-Cap Equity

Some Europe Mid-Cap Equity funds invest in equities of all sizes, thus leading to a madcap profile, but others focus on mid-cap companies. The European mid-cap range represents the 20% of the European equity market (including the UK) that falls between small caps (the bottom 10% of capitalisation) and large caps (the top 70% of capitalisation). At least 75% of total assets are invested in equities and at least 75% of equity assets are invested in European equities.

Morningstar Category Index: MSCI Europe NDTR

Europe Small-Cap Equity

Europe Small-Cap Equity funds invest primarily in the equities of small-cap European companies. Equities in the bottom 10% of the European equity market (including the UK) are defined as small-cap. At least 75% of total assets are invested in equities and at least 75% of equity assets are invested in European equities.

Morningstar Category Index: MSCI Europe Small Cap NDTR

Europe ex-UK Equity Large Cap

Europe ex-UK Large Cap funds invest primarily in the equities of large-cap companies in continental Europe. Equities in the top 70% of the capitalisation of the European equity market (including the UK) are defined as large-cap. These funds may also include smaller positions in the region’s smaller markets, including the emerging markets of Eastern Europe. These funds invest at least 75% of their total assets in equities, and invest at least 75% of equity assets in European equities, with less than 10% in the UK.

Morningstar Category Index: MSCI Europe Ex UK NDTR

Europe ex-UK Small/Mid Cap

Europe ex-UK Small/Mid Cap funds invest primarily in the equities of small- and mid-cap companies in continental Europe. These funds primarily invest in equities that fall in the bottom 30% of the European equity market (including the UK). These funds may also include smaller positions in the region’s smaller markets, including the emerging markets of Eastern Europe. These funds invest at least 75% of their total assets in equities, and invest at least 75% of equity assets in European equities, with less than 10% in the UK.

Morningstar Category Index: MSCI Europe Ex UK Small Cap NDTR

Eurozone Large-Cap Equity

Eurozone Large-Cap Equity funds invest primarily in the equities of large-cap companies from the 12 Eurozone countries. Funds in this category typically invest across multiple countries in the Eurozone. Equities in the top 70% of the European equity market (including the UK) are defined as large-cap. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Eurozone equities.

Eurozone Mid-Cap Equity

Some Eurozone Mid-Cap Equity funds invest in equities of all sizes, thus leading to a madcap profile, but others focus on mid-cap companies. Funds in this category typically invest across multiple countries in the Eurozone.The mid-cap range represents the 20% of the European equity market (including the UK) that falls between small caps (the bottom 10% of capitalisation) and large caps (the top 70% of capitalisation). At least 75% of total assets are invested in equities and at least 75% of equity assets are invested in Eurozone equities.

Eurozone Small-Cap Equity

Eurozone Small-Cap Equity funds invest primarily in the equities of small-cap companies from the 12 Eurozone countries. Funds in this category typically invest across multiple countries in the Eurozone. Equities in the bottom 10% of the European equity market (including the UK) are defined as small-cap. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Eurozone equities.

Nordic Equity

Nordic Equity funds invest primarily in equities of companies from Scandinavian countries such as Sweden, Norway, Finland and Denmark. These funds invest at least 75% of their total assets in equities, and invest at least 75% of equity assets in equities from the Nordic countries.

Asia

Asia-Pacific with Japan Equity

Asia-Pacific with Japan Equity funds have a wider investment range than other Asiaoriented funds. These funds can invest throughout the Pacific Rim, including Australia and New Zealand. As a result, country weightings for these funds vary tremendously, though most retain some exposure to Japan and Hong Kong. These funds invest at least 75% of total assets in equities, and invest at least 75% of equities in Pacific countries, including at least 15% in Japan.

Morningstar Category Index: MSCI AC Asia Pacific NDTR

Asia-Pacific ex-Japan Equity

Asia-Pacific ex-Japan Equity funds cover a wide geographic range. Most of these funds focus on export-oriented nations such as Hong Kong, Singapore, Taiwan and Korea. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Pacific Countries, with less than 10% in Japan.

Morningstar Category Index: MSCI AC Asia Pacific Ex Japan NDTR

Australia & New Zealand Equity

Australia & New Zealand Equity portfolios invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Australia and/or New Zealand.

Morningstar Category Index: MSCI Australia NDTR

China Equity

China Equity funds invest primarily in Chinese companies listed on the stock exchanges in China and Hong Kong, and companies that derive significant revenues from or have substantial business ties with the China market. These funds invest at least 75% of total assets in equities, and at least 75% of equity assets in Chinese or China-related companies defined as above. The funds usually invest less than 10% of total assets in Taiwanese equities.

Morningstar Category Index: MSCI China Free NDTR

Greater China Equity

Greater China Equity funds invest in companies from the mainland of China, Hong Kong and Taiwan. To a lesser extent, these funds may also invest in companies that derive significant revenues from or have substantial business ties with the three markets. At least 50% of equity assets are invested in Chinese equities, and at least 10% of equity assets are invested in Taiwanese equities. At least 75% of total assets are invested in equities. Morningstar Category Index: MSCI Golden Dragon Emerging Asia Single Country Equity Emerging Asia Single Country Equity funds invest primarily in the equities of companies from a single Asian country (excluding Japan, Hong Kong, Taiwan, Singapore, China, India, Australia, New Zealand and Korea). Examples are funds that invest mainly in Indonesian or Thai companies. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in a single emerging Asian country.

Morningstar Category Index: MSCI AC Asia Pacific Ex Japan NDTR

Hong Kong Equity

Hong Kong Equity funds invest primarily in the equities of Hong Kong companies. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Hong Kong equities.

Morningstar Category Index: MSCI Hong Kong NDTR

India Equity

India Equity funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Indian equities.

Morningstar Category Index: MSCI India NDTR

Japan Large-Cap Equity

Japan Large-Cap Equity funds invest primarily in the equities of large-cap Japanese companies. Equities in the top 70% of the capitalisation of the Japanese market are defined as large-cap. These funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Japanese equities.

Morningstar Category Index: MSCI Japan NDTR

Japan Small/Mid-Cap Equity

Japan Small/Mid-Cap Equity funds invest primarily in the equities of small-cap and madcap Japanese companies. Their holdings typically fall in the bottom 30% of the capitalisation of the Japanese equity market. These funds invest at least 75% of their total assets in equities, and invest at least 75% of equity assets in Japanese equities.

Morningstar Category Index: MSCI Japan Small Cap NDTR

Korea Equity

Korea Equity funds invest primarily in the equities of South-Korean companies. These funds invest at least 75% of their total assets in equities, and invest at least 75% of equity assets in Korean equities.

Morningstar Category Index: MSCI Korea NDTR

Singapore Equity

Singapore Equity funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Singapore equities.

Morningstar Category Index: MSCI Singapore NDTR

Taiwan Equity

Taiwan Equity funds invest at least 75% of total assets in equities, and invest at least 75% of equity assets in Taiwanese equities.

Morningstar Category Index: MSCI Taiwan NDTR

Global

Emerging Markets Equity

Emerging Markets Equity funds tend to divide their assets among several emerging markets in Asia, Latin America, Europe, Middle East and/or Africa. These funds invest at least 75% of their total assets in equities, and invest at least 75% of equity assets in emerging markets equities.

Morningstar Category Index: MSCI EM (Emerging Markets) NDTR

Global Large-Cap Blend Equity

Global Large-Cap Blend Equity funds invest primarily in the equities of large-cap companies from around the globe. Most of these funds divide their assets among many developed markets and invest at least 20% of equity assets in North America and 15% in Greater Europe. Equities in the top 70% of the capitalisation of each of the seven regional Morningstar style zones are defined as large-cap (the style zones are Europe, U.S., Canada, Latin America, Japan, Asia ex-Japan, and Australia/New Zealand–please see the Morningstar Style Box Methodology for further information). The blend style is assigned to funds where neither growth nor value characteristics predominate. At least 75% of total assets are invested in equities.

Morningstar Category Index: MSCI The World Index Free NDTR

Global Large-Cap Growth Equity

Global Large-Cap Growth Equity funds invest primarily in the equities of large-cap growth companies from around the globe. Most of these funds divide their assets among many developed markets and invest at least 20% of equity assets in North America and 15% in Greater Europe. Equities in the top 70% of the capitalisation of each of the seven regional Morningstar style zones are defined as large-cap (the style zones are Europe, U.S., Canada, Latin America, Japan, Asia ex-Japan, and Australia/New Zealand–please see the Morningstar Style Box Methodology for further information). Growth is defined based on fast growth (high growth rates for earnings, sales, book value, and cash flow) and high valuations (high pric e ratios and low dividend yields). At least 75% of total assets are invested in equities.

Morningstar Category Index: MSCI The World Index Free Growth NDTR

Global Large-Cap Value Equity

Global Large-Cap Value Equity funds invest primarily in the equities of large-cap value companies from around the globe. Most of these funds divide their assets among many developed markets and invest at least 20% of equity assets in North America and 15% in Greater Europe. Equities in the top 70% of the capitalisation of each of the seven regional Morningstar style zones are defined as large-cap (the style zones are Europe, U.S., Canada, Latin America, Japan, Asia ex-Japan, and Australia/New Zealand–please see the Morningstar Style Box Methodology for further information). Value is defined based on low valuations (low price ratios and high dividend yields) and slow growth (low growth rates for earnings, sales, book value, and cash flow). At least 75% of total assets are invested in equities.

Morningstar Category Index: MSCI The World Index Free Value NDTR

Global Equity Small/Mid Cap

Global Equity Small/Mid Cap funds invest primarily in the equities of small- and mid-cap companies from around the globe. Most of these portfolios divide their assets among many developed markets and invest at least 20% of equity assets in North America and 15% in Greater Europe. Equities in the bottom 10% of the capitalisation of each of the seven regional Morningstar style zones are defined as small-cap, and equities in the next 20% of each market’s capitalisation are defined as mid-cap (the style zones are Europe, U.S., Canada, Latin America, Japan, Asia ex-Japan, and Australia/New Zealand–please see the Morningstar Style Box Methodology for further information). At least 75% of total assets are invested in equities.

Morningstar Category Index: MSCI The World Index Small Cap NDTR

Sector Specific

Sector Equity Biotechnology

Sector Equity Biotechnology funds invest primarily in the equities of companies that focus on biotechnology. These funds invest at least 75% of total assets in equities and invest at least 50% of equity assets in the biotechnology industry.

Morningstar Category Index: MSCI Wrld/Biotechnology NDTR

Sector Equity Communications

Sector Equity Communications funds invest primarily in the equities of telecommunications and media companies of various kinds. Most buy some combination of cable television, wireless-communications, and communications-equipment firms as well as traditional phone companies. These funds invest at least 75% of total assets in equities and invest at least 50% of equity assets in the telecommunication and media sectors.

Morningstar Category Index: MSCI Wrld/Comml Svc & Suppl NDTR

Sector Equity Consumer Goods and Services

Sector Equity Consumer Goods and Services funds invest primarily in the equities of companies that manufacture or provide consumer goods or services. These funds invest at least 75% of total assets in equities and invest at least 50% of equity assets in the consumer goods and/or consumer services sectors.

Morningstar Category Index: 50% MSCI Wrld/Consumer Discretionary NDTR, 50% MSCI Wrld/ Consumer Staples NDTR

Sector Equity Energy

Sector Equity Energy funds invest primarily in the equities of companies that produce or refine oil and gas, oilfield services and equipment companies, and pipeline operators. These funds invest at least 75% of total assets in equities and invest at least 50% of equity assets in energy equities.

Morningstar Category Index: MSCI Wrld/Energy NDTR

Sector Equity Financial Services

Sector Equity Financial Services funds invest primarily in the equities of companies in the financial services sector, including banks, brokerage firms, insurance companies and consumer credit providers. These funds invest at least 75% of total assets in equities and invest at least 50% of equity assets in financial services companies.

Morningstar Category Index: MSCI Wrld/Financials NDTR

Sector Equity Health Care

Sector Equity Health Care funds invest primarily in the equities of companies in the medical and health-care industries. Most invest in a range of companies, buying everything from pharmaceutical and medical device makers to hospitals and nursing homes. A few funds concentrate on just one industry segment, such as medical devices. These funds invest at least 75% of total assets in equities, and invest at least 50% of equity assets in health care companies.

Morningstar Category Index: MSCI Wrld/Health Care NDTR

Sector Equity Industrial Materials

Sector Equity Industrial Materials funds invest primarily in the equities of industrialmaterials companies. These include companies that provide or manufacture chemicals, machinery, building materials, and commodities, as well as aerospace and defence firms. These funds invest at least 75% of total assets in equities, and invest at least 50% of equity assets in industrial materials companies.

Morningstar Category Index: MSCI Wrld/Materials NDTR

Sector Equity Precious Metals

Sector Equity Precious Metals portfolios invest primarily in the equities of mining companies, though some may own gold or other metals outright. Most portfolios concentrate on gold-mining equities, but some have significant exposure to silver-, platinum-, and base-metal-mining equities as well. Many precious-metals companies are based in North America, Australia, and South Africa.

Sector Equity Real Estate Direct

Sector Equity Real Estate Direct funds have the legal status of an investment fund, and directly invest in and/or manage real estate (i.e., they directly own or manage “bricks and mortar” property). At least 50% of the total assets are invested directly in real estate properties.

Morningstar Category Index: MSCI Wrld/Real Estate NDTR

Sector Equity Real Estate Indirect

Sector Equity Real Estate Indirect funds invest primarily in the securities of real-estate companies, including those of real-estate investment trusts (REITs). They do not invest significant amounts directly in “bricks and mortar”. Some funds concentrate on a certain segment of the real estate market, such as companies or trusts that own office buildings or residential properties. These funds invest at least 75% of total assets in equities, and invest at least 50% of equity assets in real-estate securities.

Morningstar Category Index: MSCI Wrld/Real Estate NDTR

Sector Equity Technology

Sector Equity Technology funds invest primarily in the equities of companies in the hardware and software sectors. Most concentrate on computer, semiconductor, software, networking and internet-related equities. Some concentrate on a single technology industry. These funds invest at least 75% of total assets in equities, and invest at least 50% of equity assets in the hardware and software sectors.

Morningstar Category Index: MSCI Wrld/Information Tech NDTR

Sector Equity Utilities

Sector Equity Utilities funds invest primarily in the equities of companies in the utilities sector. The sector includes electric , gas, and water companies, but not telecommunications or cable companies. These funds invest at least 75% of total assets in equities, and invest at least 50% of equity assets in utility companies.

Morningstar Category Index: MSCI Wrld/Utilities NDTR

Sector Equity Other

Sector Equity Other funds have meaningful sector concentrations, but do not fit in a Sector Equity category. These funds invest at least 75% of total assets in equities. They concentrate their assets in less than four sectors, and invest more than 10% of equity assests in each of those sectors

Bond

Asia/Japan Convertible Bond

Asia/Japan Convertible Funds invest principally in convertible securities denominated or hedged into the Yen or other Asian currencies.

Dollar/Global Convertible Bond

These funds invest principally in convertible securities denominated in or hedged into the U.S. dollar or have global currency exposure.

Morningstar Category Index: Merrill Lynch All Conv, All Qualities

Emerging Europe Bond

Emerging Europe Bond funds invest principally in bonds of issuers in emerging markets countries in Europe. Most funds will invest in several countries or currencies, though same may specialise in a single country or currency.

Morningstar Category Index: ML EUR EM Sovr EUR/ME/Afr

Euro Convertible Bond

Euro Convertible Bond funds invest principally in convertible securities denominated in or hedged into the Euro.

Euro Money Market, Stable

Euro Money Market Stable funds place an emphasis on capital preservation, by limiting maturity to less than 90 days and maintaining a high level of average credit quality.

Morningstar Category Index: Citigroup 1M Euro Deposit

Euro Money Market, Dynamic

Euro Money Market Dynamic funds tend to have average maturity that exceeds 90 days. These funds attempt to add value over stable money-market funds by taking on more credit risk than the latter and by investing in some less than perfectly liquid instruments (e.g. asset swaps).

Morningstar Category Index: Citigroup 3M Euro Deposit

Euro Short Bond

Euro Short Bond funds invest in short-dated bonds denominated or hedged into euros. The aggregate maturity for each fund does not tend to exceed three years.

Morningstar Category Index: Citigroup Eurozone GBI 1-3Y

Euro Government Bond

Euro Government Bond funds invest primarily in government or government-backed agency securities denominated or hedged into the relevant currency.

Morningstar Category Index: Citigroup Eurozone GBI

Euro Global Bond

Euro Global Bond funds invest in fixed income securities and take material currency exposures as part of their investment strategies. These funds are optimised in euros and a moderate credit exposure is possible.

Morningstar Category Index: Citigroup WGBI In Euros

Euro Global Bond – Hedged

Euro Global Bond – Hedged funds invest in bonds on a global basis, and normally hedge all of their currency exposure back into the Euro.

Morningstar Category Index: Citi Ccy-Hdg WGBI Euros

Euro High Yield Bond

Euro High Yield Bond funds invest in higher yielding securities denominated or hedged into the relevant currency. These funds invest 40% or more of their assets in securities with a credit quality equivalent to BB, or lower.

Morningstar Category Index: Lehman Pan-European High Yield (Euro)

Euro Inflation Linked Bond

Euro Inflation Linked Bond funds invest principally in inflation-linked bonds denominated in or hedged into the Euro.

Morningstar Category Index: EuroMTS Inflation Linked Aggregate

Non-Euro Inflation Linked Bond

Non-Euro Inflation Linked Bond funds invest primarily in inflation-linked bonds denominated in or hedged into currencies other than the Euro.

Morningstar Category Index: ML Glb Gov Inflation-Linked

Euro Long Bond

Euro Long Bond funds invest principally in bonds denominated in or hedged into the Euro. The average maturity for each fund is generally greater than 10 years.

Morningstar Category Index: Citi Eurozone GBI 10+Y

Euro Diversified Bond

Euro Diversified Bond funds have a generalist mandate and do not exhibit significant risk concentrations. This category contains funds that are not eligible for other Eurodenominated/ hedged bond fund categories.

Morningstar Category Index: Lehman Euro-Aggregate Index

European Bond

European Bond funds invest in European fixed income securities. This category is similar to the Euro Global Bond category, except that the foreign currency exposure is limited to European currencies.

Morningstar Category Index: Lehman Pan-European Aggregate

Sterling Money Market

Sterling Money Market funds invest in Sterling-denominated money market instruments. The residual aggregate maturity of those instruments does not exceed 12 months.

Morningstar Category Index: Citigroup 3M Sterling Deposit

Sterling Government Bond

Sterling Government Bond funds invest primarily in government or government-backed agenc y securities denominated or hedged into the relevant currency.

Morningstar Category Index: Citigroup UK GBI, All Maturities, USD

Sterling High Yield Bond

Sterling High Yield Bond funds invest in higher yielding securities denominated or hedged into Sterling. These funds will invest 40% or more of their assets in securities with a credit quality equivalent to BB, or lower.

Morningstar Category Index: Lehman Pan-European High Yield (Non-Euro)

Sterling Global Bond

Sterling Global Bond funds invest in fixed income securities and take material currency exposures as part of their investment strategies, but are optimised in Sterling. A moderate credit exposure is possible.

Morningstar Category Index: Citigroup WGBI, All Maturities, In Sterling

Sterling Diversified Bond

Sterling Diversified Bond funds have a generalist mandate and do not exhibit significant risk concentrations. This category contains funds that are not eligible for other bond fund categories.

Morningstar Category Index: Lehman Sterling Aggregate

Dollar Money Market

Dollar Money Market funds invest in U.S. Dollar-denominated money market instruments of which the residual aggregate maturity does not exceed 12 months.

Morningstar Category Index: Citigroup 3M USD Deposit

Dollar Short Bond

Dollar Short Bond funds invest in short-dated bonds denominated in or hedged into U.S. dollars. The aggregate maturity for each fund does not tend to exceed three years.

Morningstar Category Index: Citigroup U.S. GBI 1-3 Year Sector

Dollar Government Bond

Dollar Government Bond funds invest primarily in government or government-backed agency securities denominated in or hedged into the relevant currency.

Morningstar Category Index: Citigroup U.S. GBI, All Maturities, In Euros

Dollar Global Bond

Dollar Global Bond funds invest in fixed income securities and take material currency exposures as part of their investment strategies. These funds are optimised in U.S. dollars and a moderate credit exposure is possible.

Morningstar Category Index: Citigroup World GBI

Dollar High Yield Bond

Dollar High Yield Bond funds invest in higher yielding securities denominated or hedged into the relevant currency. These funds invest 40% or more of their assets in securities with a credit quality equivalent to BB, or lower.

Morningstar Category Index: Lehman High Yield Corporate Bond Index

Dollar Diversified Bond

Dollar Diversified Bond funds have a generalist mandate and do not exhibit significant risk concentrations. This category contains funds that are not eligible for other dollardenominated/ hedged bond fund categories.

Morningstar Category Index: Lehman Aggregate Bond Index

SEK Bond

SEK Bond funds invest in bonds denominated or hedged into Swedish Krona. The aggregate maturity of these funds exceeds three years.

Morningstar Category Index: Citigroup Sweden GBI

SEK Money Market

SEK Money Market funds invest in Swedish Krona-denominated money market instruments. The residual aggregate maturity does not exceed 12 months.

Morningstar Category Index : Statsobligasjonsind. 0.25

SEK Short Bond

SEK Short Bond invest in short-dated bonds denominated or hedged into Swedish Krona. The aggregate maturity does not exceed three years. Morningstar Category Index: Citigroup Sweden GBI 1-3Y NOK Bond NOK Bond funds invest in bonds denominated or hedged into Norwegian Krone, where the aggregate maturity exceeds three years.

Morningstar Category Index: Statsobligasjonsind. 3.00

NOK Money Market

NOK Money Market funds invest in Norwegian Krone-denominated money market instruments. The residual aggregate maturity does not exceed 12 months.

Morningstar Category Index: Statsobligasjonsind. 0.25

NOK Short Bond

NOK Short Bond Funds invest in short-dated bonds denominated or hedged into Norwegian Krone. The aggregate maturity does not exceed three years.

Morningstar Category Index: Statsobligasjonsind. 1.00

DKK Money Market

DKK Money Market funds invest in Danish Krone-denominated money market instruments. The residual aggregate maturity does not exceed 12 months.

DKK Bond

DKK Bond invest in bonds denominated or hedged into Danish Krone, where the aggregate maturity exceeds three years.

Morningstar Category Index: Citigroup Danish GBI, All Maturities, In Euros

DKK Short Bond

DKK Short Bond funds invest in short-dated bonds denominated or hedged into Danish Krone. The aggregate maturity does not exceed three years.

Morningstar Category Index: Citigroup Danish GBI, 1-3 Year Sector, USD

CHF Money Market

CHF Money Market funds invest in Swiss Francs-denominated money market instruments. The residual aggregate maturity does not exceed 12 months.

Morningstar Category Index: Citigroup Swiss Franc 1-Month Euro Deposit, USD

CHF Bond

CHF Bond funds invest in bonds denominated or hedged into Swiss Franc , where the aggregate maturity exceeds three years.

Morningstar Category Index: Citigroup Swiss GBI, all maturities

CHF Global Bond

CHF Global Bond funds invest in fixed income securities and are taking material currency exposures as part of their investment strategies. These funds optimise their returns in Swiss Francs and a moderate credit exposure is possible.

Morningstar Category Index: Citigroup WGBI CHF

CAD Bond and Cash

CAD Bond and Cash funds invest in Canadian Dollar-denominated bonds and/or money market securities.

Morningstar Category Index: Citigroup Canadian GBI, all maturities

AUD Bond and Cash

AUD Bond and Cash funds invest in Australian Dollar-denominated bonds and/or money market securities.

Morningstar Category Index: Citigroup Australian GBI, all maturities

JPY Bond

JPY Bond funds invest in Japanese Yen-denominated bonds and money market securities.

Morningstar Category Index: Citigroup Japanese GBI, All Maturities, USD

Taiwan Bond

Taiwan Bond funds invest in Taiwan Dollar-denominated Bonds and/or money market securities.

Morningstar Category Index: JPM Taiwan Local Markets Index Plus (USD)

Asia Bond

The Asia Bond funds category consists of all funds investing in Asian Bonds and money market securities (excl. funds that exclusively invest in Australia, Japan or Taiwan).

Morningstar Category Index: JPM Asia Local Markets Index Plus (USD)

Emerging Markets Bond

Emerging Market Bond funds are dedicated to fixed income securities of issuers in emerging market countries. Most funds will invest in several currencies or countries. Some might have a more specialized approach.

Morningstar Category Index: JPM EMBI+

CHF Aggressive Balanced

CHF Aggressive Balanced funds have a mandate to balance equity and bond investments for a Swiss Franc -based investor. The equity component does not exceed 75% in the normal running of the fund.

Morningstar Category Index: 40% Citi Switzerland GBI, 60% FTSE World

CHF Cautious Balanced

CHF Cautious Balanced funds have a mandate to balance equity and bond investments for a Swiss Franc -based investor. The equity component does not exceed 40% in the normal running of the fund.

Morningstar Category Index: 75% Citi Switzerland GBI, 60% FTSE World

DKK Balanced

DKK Balanced funds have a mandate to balance equity and bond investments for a Danish Krone-based investor. The equity component does not exceed 75% in the normal running of the fund.

Morningstar Category Index: 50% Citi Danish GBI, 50% FTSE World

Dollar Balanced

Dollar Balanced funds have a mandate to balance equity and bond investments for a U.S. Dollar-based investor. The equity component does not exceed 75% in the normal running of the fund.

Morningstar Category Index: LB $ Aggregate 50% / FTSE World 50%

Euro Cautious Balanced

Euro Cautious Balanced funds have a mandate to balance equity and bond investments for a Euro-based investor. The equity component does not exceed 35% in the normal running of the fund.

Morningstar Category Index: LB Euro-Agg. 75% / FTSE World 25%

Euro Moderate Balanced

Euro Moderate Balanced funds have a mandate to balance equity and bond investments for a Euro-based investor. The equity component does not exceed 60% in the normal running of the fund.

Morningstar Category Index: LB Euro-Agg. 50% / FTSE World 50%

Euro Aggressive Balanced

Euro Aggressive Balanced funds have a mandate to balance equity and bond investments for a Euro-based investor. The equity component does not exceed 75% in the normal running of the fund.

Morningstar Category Index: LB Euro-Agg. 25% / FTSE World 75%

NOK Balanced

NOK Balanced funds have a mandate to balance equity and bond investments for a Norwegian-Krone based investor. The equity component does not exceed 75% in the normal running of the fund.

Morningstar Category Index: 50% Citi Norway GBI, 50% FTSE World

SEK Aggressive Balanced

SEK Aggressive Balanced funds have a mandate to balance equity and bond investments for a Swedish-Krona based investor. The equity component does not exceed 75% in the normal running of the fund.

Morningstar Category Index: 40% Citi Sweden GBI, 30% MSCI Sweden NDTR, 30% FTSE World

SEK Cautious Balanced

SEK Cautious Balanced funds have a mandate to balance equity and bond investments for a Swedish-Krona based investor. The equity component does not exceed 40% in the normal running of the fund.

Morningstar Category Index: 75% Citi Sweden GBI, 12.5% MSCI Sweden NDTR, 12.5% FTSE World

Sterling Aggressive Balanced

Sterling Aggressive Balanced funds have a mandate to balance equity and bond investments for a sterling-based investor. The equity component does not exceed 75% in the normal running of the fund.

Morningstar Category Index: 40% Lehman Brothers Sterling Aggregate, 60% FTSE World

Sterling Cautious Balanced

Sterling Cautious Balanced funds have a mandate to balance equity and bond investments for a Sterling-based investor. The equity component does not exceed 40% in the normal running of the fund.

Morningstar Category Index: 75% Lehman Brothers Sterling Aggregate, 25% FTSE World

Asia Balanced

Asia Balanced funds have a mandate to balance equity and bond investments for an Asiabased investor. The equity component does not exceed 75% in the normal running of the fund.

Morningstar Category Index: 50% JPM Asia Local Markets Index Plus (USD) / 50% MSCI AC Asia Pacific NDTR

Taiwan Balanced

Taiwan Balanced funds have a mandate to balance equity and bond investments for a Taiwan-based investor. The equity component does not exceed 75% in the normal running of the fund.

Morningstar Category Index: 50% JPM Taiwan Local Markets Index Plus (USD) / 50% MSCI Taiwan NDTR

Capital Protected

Capital Protected funds protect capital but do not guarantee the repayment of all or part of the capital invested. This category is in use in Hong Kong.

Euro Absolute Return

Euro Absolute Return funds have an investment objective of pursuing positive returns in all market environments, and risk controls and investment capabilities sufficient to give the fund a reasonable chance of meeting that objective. They should not display a negative return over an 18 month period. Such funds will typically have a stated benchmark reflecting that goal (e.g., Euribor + 2%, etc.), and should have the ability to invest across asset classes and/or use derivatives. The funds in this category will invest primarily in instruments denominated in or hedged into the Euro.

Morningstar Category Index: ML Euro LIBOR 1-Mth Const Mat (LOC)

Non-Euro Absolute Return

Non Euro Absolute Return funds have an investment objective of pursuing positive returns in all market environments, and risk controls and investment capabilities sufficient to give the fund a reasonable chance of meeting that objective. They should not display a negative return over an 18 month period. Such funds will typically have a stated benchmark reflecting that goal (e.g., Libor + 2%, etc.), and should have the ability to invest across asset classes and/or use derivatives. The funds in this category will invest primarily in instruments denominated in or hedged into currencies other than the Euro.

Morningstar Category Index: ML GBP LIBOR 1-Mth Const Mat (LOC)

Guaranteed Funds

Guaranteed funds promise and/or guarantee the repayment of all or part of the capital invested or promises a pre-determined rate of return.

Long-Short Funds

Long-short funds take long positions in securities that appear attractive and short positions in securities that appear to be unattractive (e.g. by taking full use of the investment powers under Ucits 3 regulations). Some of these portfolios are market neutral, which means that they divide their exposure equally between long and short positions in an attempt to minimize the losses that could occur from a broad market rally or decline. Other funds exclusively focus on investments that are or could be involved in mergers and acquisitions or invest in multiple funds that use the ability of arbitrage and or long-short positions.

Target Date 2000-2014

Target-date portfolios provide diversified exposure to equities, bonds, and cash for those investors who have a specific date in mind (in this case, the years 2000-2014) for retirement or another goal. These portfolios aim to provide investors with an optimal level of return and risk, based solely on the target date. These portfolios get more conservative as the goal date approaches by investing more in bonds and cash. Investment managers structure these portfolios differently; two funds with the same goal year may have different allocations to equities and therefore different levels of return and risk. The category excludes guaranteed funds.

Morningstar Category Index: 50% Citi WGBI Euros, 50% FTSE World

Target Date 2015+

Target-date portfolios provide diversified exposure to equities, bonds, and cash for those investors who have a specific date in mind (in this case, the years 2015 and beyond) for retirement or another goal. These portfolios aim to provide investors with an optimal level of return and risk, based solely on the target date. These portfolios get more conservative as the goal date approaches by investing more in bonds and cash. Investment managers structure these portfolios differently; two funds with the same goal year may have different allocations to equities and therefore different levels of return and risk. The categoryexcludes guaranteed funds.

Morningstar Category Index: 25% Citi WGBI Euros, 75% FTSE World

Other

All funds which do not fit into any other category.

For additional information, please see: Morningstar Category Classifications

Morningstar class code
A Morningstar code which identifies whether a fund class is for accumulation or income.

Morningstar Equity Fund Style Box
An equity fund is an aggregation of individual equities and its style is determined by the style assignments of the equities it owns. By plotting all of a fund’s equities on the equity style grid, the range of equity styles included in the fund immediately becomes apparent. An asset-weighted average of the underlying equities’ style and size scores determines a fund’s placement in the Style Box. Style box assignments for equities are updated each month. Assignments for funds are recalculated whenever Morningstar receives updated portfolio holdings for the fund.

Morningstar Equity Style Box
This is a proprietary Morningstar data point. The Morningstar Style Box is a nine-square grid that provides a graphical representation of the “investment style” of equities and mutual funds. For equities and equity funds, it classifies securities according to market capitalization (the vertical axis) and growth and value factors (the horizontal axis). Fixed income funds are classified according to credit quality (the vertical axis) and sensitivity to changes in interest rates (the horizontal axis).

By providing an easy-to-understand visual representation of equities and fund characteristics, the Morningstar Style Box allows for informed comparisons and portfolio construction based on actual holdings, as opposed to assumptions based on a fund’s name or how it is marketed. The Style Box also forms the basis for Morningstar’s style-based fund categories and market indexes.

How It Works

The vertical axis of the Style Box defines three size categories, or capitalization bands-small, mid-size, and large. The horizontal axis defines three style categories. Two of these categories, “value” and “growth,” are common to both equities and funds. However, for equities, the central column of the style box represents the core style (those equities for which neither value or growth characteristics dominate); for funds, it represents the blend style (a mixture of growth and value equities or mostly core equities).

Style Box assignments begin at the individual equity level. Morningstar determines the investment style of each individual equity in its database. Equities are evaluated against other equities in the same geographic area (United States, Latin America, Canada, Europe, Japan, Asia ex-Japan, Australia/New Zealand). The style attributes of individual equities are then used to determine the style classification of equity mutual funds.

The Horizontal Axis

The scores for a equity’s value and growth characteristics determine its horizontal placement:

Value Score Components and Weights

Forward looking measures 50.0%

Price/Prospective Earnings.

Historical based measures 50.0%

Price/book 12.5% Price/sales 12.5% Price/cash flow 12.5% Dividend yield 12.5%

Growth Score Components and Weights

Forward looking measures 50.0%

Long-term projected earnings growth

Historical-based measures 50.0%

Historical earnings growth 12.5% Sales growth 12.5% Cash flow growth 12.5% Book value growth 12.5%

Growth and value characteristics for each individual equity are compared to those of other equities within the same capitalization band and are scored from zero to 100 for both value and growth. To determine the overall style score, the value score is subtracted from the growth score.

The resulting number can range from 100 (for low-yield, extremely growth-oriented equities) to -100 (high-yield, low-growth equities). An equity is classified as growth if the net score equals or exceeds the “growth threshold” (normally about 25 for large-cap equities). It is deemed value if its score equals or falls below the “value threshold “(normally about -15 for large-cap equities). And if the score lies between the two thresholds, the equity is classified as “core.”

The thresholds between value, core, and growth equities vary to some degree over time, as the distribution of equity styles changes in the market. However, on average, the three equity styles each account for approximately one third of the total free float in each size category.

The Vertical Axis

Rather than a fixed number of “large cap”or “small cap” equities, Morningstar uses a flexible system that isn’t adversely affected by overall movements in the market. Large-cap equities are defined as the group that accounts for the top 70% of the capitalization of each geographic area; mid-cap equities represent the next 20%; and small-cap equities represent the balance.

Morningstar fund code
An identification code assigned to funds by Morningstar.

Morningstar Rating for Stocks
The Morningstar Rating for Stocks is calculated by comparing a stock´s current market price with Morningstar´s estimate of the stock´s fair value. Our rating system also includes a risk adjustment, so that it´s more difficult for a company with above-average business risk to earn a 5-star rating.

The margin of safety we demand before giving a stock 5 stars is determined by our assessment of business risk. Our analysts assign stocks to one of three business risk ratings. We make it tougher for stocks with above-average business risk ratings to earn 5 stars.

Each of the five star-rating levels is defined based on expected returns, which assume that the stock´s market price and fair value eventually converge. Under our system, 3-star stocks are those that should offer a “fair return,” one that adequately compensates for the riskiness of the stock. Three-star stocks should offer investors a return that´s roughly comparable to the stock´s cost of equity. (The cost of equity is often called a “required return” because it represents the return an investor requires for taking on the risk of owning the stock.)

Five-star stocks, of course, should offer an investor a return that´s well above the company´s cost of equity, and high-risk 5-star stocks should offer a better expected return than low-risk 5-star stocks. On average, we expect 5-star stocks with below-average risk to return at least 15.5% annualized over the next three years. Because the hurdle rate for stocks with above-average risk is higher, we´d expect a 30.5% annualized return for a 5-star stock with above-average risk. Conversely, low-rated stocks have significantly lower expected returns. If a stock drops to 1 star, that means we expect it to lose money for investors over the next three years, based on our assessment of the stock´s fair value.

The Morningstar Rating for Stocks also includes a small buffer around the cutoff between each rating, to reduce the number of rating changes produced by random market “noise.” If a $50 stock moves up and down by $0.25 each day over a few days, the buffer will prevent the star rating from changing each day based on this insignificant change. 

Morningstar Rating™
Morningstar rates investments from one to five stars based on how well they’ve performed in comparison to similar investments, after adjusting for risk and accounting for all relevant sales charges. Within each Morningstar Category, the top 10% of investments receive five stars, the next 22.5% four stars, the middle 35% three stars, the next 22.5% two stars, and the bottom 10% receive one star. Investments are rated for up to three time periods – 3, 5, and 10 years, and these ratings are combined to produce an overall rating. Investments with less than three years of history are not rated. Ratings are objective, based entirely on a mathematical evaluation of past performance. They’re a useful tool for identifying investments worthy of further research, but shouldn’t be considered buy or sell recommendations.

For additional information, please see: Morningstar Fund Rating Methodology

Morningstar Regions
Region Breakdown

Morningstar divides countries of the world into 10 different geographic regions. These regions serve as the basis for the region breakdown portfolio calculation. The region breakdown calculation helps investors evaluate their equity exposure in various markets. It also helps investors differentiate between various global funds, which can invest across the world. Region breakdown is based on equity assets only. The 10 regions can also be folded into three super geographic regions: the Americas, Greater Europe and Greater Asia.

Development Status

Morningstar also classifies countries as developed or emerging. These assignments are based on per capita gross national income, as defined by the World Bank. The World Bank classifies countries as low income, middle income, upper middle income, and high income. With very few exceptions, the countries with high income are considered developed markets.

For additional information on which countries are in each region, please see: Morningstar Regions

Morningstar Return
Morningstar return is an assessment of the fund’s excess return over a risk-free rate (the return of the 90-day Treasury bill) in comparison to similar funds, with an emphasis on downward variation. Therefore, if two funds have precisely the same return, the one with greater variations in its return is given the larger risk score. In each Morningstar Category, the top 10% of funds earn a High Morningstar Return, the next 22.5% Above Average, the middle 35% Average, the next 22.5% Below Average, and the bottom 10% Low. Morningstar Return is measured for up to three time periods (three-, five-, and 10-years). These separate measures are then weighted and averaged to produce an overall measure for the fund. Funds with less than three years of performance history are not rated.

For additional information, please see: Gross Returns Methodology

Morningstar Risk
An annualized measure of a fund’s downside volatility over a three-, five-, or ten-year period. This is a component of the Morningstar Risk-Adjusted Return.

Morningstar Risk Rating is derived directly from Morningstar Risk. In each Morningstar Category, the top 10% of investments earn a High rating, the next 22.5% Above Average, the middle 35% Average, the next 22.5% Below Average, and the bottom 10% Low. Investments with less than three years of performance history are not rated.

Morningstar Risk Rating
An annualized measure of a fund’s downside volatility over a three-, five-, or ten-year period. This is a component of the Morningstar Risk-Adjusted Return.

Morningstar Risk Rating is derived directly from Morningstar Risk. In each Morningstar Category, the top 10% of investments earn a High rating, the next 22.5% Above Average, the middle 35% Average, the next 22.5% Below Average, and the bottom 10% Low. Investments with less than three years of performance history are not rated.

Morningstar Sectors
Sectors help investors and investment professionals more easily compare and understand the sector exposures of mutual funds and portfolios. At Morningstar, the stock market is divided into twelve specific industry sectors. Sectors are based on what companies actually do. That is, unlike some other sector classification systems, sectors aren’t based on expected behavior of the stocks of these companies.

The sectors are as follows:

Information

% Software

Companies engaged in the design and marketing of computer operating systems and applications. Examples include Infosys Technologies, SAP Corporation,

% Hardware

Manufacturers of computer equipment, communication equipment, semiconductors, and components. Examples include Logitech, Spirent Communications, TomTom

% Media

Companies that own and operate broadcast networks and those that create content or provide it to other media companies. Examples include British Sky Broadcasting Group, ITV, Vivendi Universal

% Telecommunication

Companies that provide communication services using fixed-line networks or those that provide wireless access and services. Examples include Vodafone Group, BT Group, Deutsche Telekom

Service

% Health Care Services

Includes biotechnology, pharmaceuticals, research services, HMOs, home health, hospitals, medical equipment and supplies, and assisted living companies. Examples include Shire PLC, Siegfried GRP, Care UK

% Consumer Services

Includes retail stores, personal services, home builders, home supply, travel and entertainment companies, and educational providers. Examples include Debenhams, The Berkeley Group, Inchcape

% Business Services

Includes advertising, printing, publishing, business support, consultants, employment, engineering and construction, security services, waste management, distributors, and transportation companies. Examples include SR. Teleperformance, Saipem, Stagecoach Group

% Financial Services

Includes banks, finance companies, money management firms, savings and loans, securities brokers, and insurance companies. Examples include Merrill Lynch, Barclays, Invesco

Manufacturing

% Consumer Goods

Companies that manufacture or provide food, beverages, household and personal products, apparel, shoes, textiles, autos and auto parts, consumer electronics, luxury goods, packaging, and tobacco. Examples include Coca-Cola, Heineken, Hermes, Daimler Chrysler

% Industrial Materials

Includes aerospace and defense firms, and companies that provide or manufacture chemicals, machinery, building materials, and commodities. Examples include Rolls Royce, BBA Grp, Bayer Corporation

% Energy

Companies that produce or refine oil and gas, oil field service and equipment companies, and pipeline operators. Examples include Royal Dutch Shell, BP, Statoil

% Utilities

Electric, gas, and water utilities. Examples include National Grid, Centrica, United Utilities

For additional information, please see: Morningstar Sectors Methodology

Morningstar Style Box
This is a proprietary Morningstar data point. The Morningstar Style Box is a nine-square grid that provides a graphical representation of the “investment style” of stocks and mutual funds. For stocks and stock funds, it classifies securities according to market capitalization (the vertical axis) and growth and value factors (the horizontal axis). Fixed income funds are classified according to credit quality (the vertical axis) and sensitivity to changes in interest rates (the horizontal axis).

By providing an easy-to-understand visual representation of stock and fund characteristics, the Morningstar Style Box allows for informed comparisons and portfolio construction based on actual holdings, as opposed to assumptions based on a fund’s name or how it is marketed. The Style Box also forms the basis for Morningstar’s style-based fund categories and market indexes.

How It Works

The vertical axis of the Style Box defines three size categories, or capitalization bands-small, mid-size, and large. The horizontal axis defines three style categories. Two of these categories, “value” and “growth,” are common to both stocks and funds. However, for stocks, the central column of the style box represents the core style (those stocks for which neither value or growth characteristics dominate); for funds, it represents the blend style (a mixture of growth and value stocks or mostly core stocks).

Style Box assignments begin at the individual stock level. Morningstar determines the investment style of each individual stock in its database. Stocks are evaluated against other stocks in the same geographic area (United States, Latin America, Canada, Europe, Japan, Asia ex-Japan, Australia/New Zealand). The style attributes of individual stocks are then used to determine the style classification of stock mutual funds.

The Horizontal Axis

The scores for a stock’s value and growth characteristics determine its horizontal placement:

Value Score Components and Weights

Forward looking measures 50.0%

Price/Prospective Earnings.

Historical based measures 50.0%

Price/book 12.5% Price/sales 12.5% Price/cash flow 12.5% Dividend yield 12.5%

Growth Score Components and Weights

Forward looking measures 50.0%

Long-term projected earnings growth

Historical-based measures 50.0%

Historical earnings growth 12.5% Sales growth 12.5% Cash flow growth 12.5% Book value growth 12.5%

Growth and value characteristics for each individual stock are compared to those of other stocks within the same capitalization band and are scored from zero to 100 for both value and growth. To determine the overall style score, the value score is subtracted from the growth score.

The resulting number can range from 100 (for low-yield, extremely growth-oriented stocks) to -100 (high-yield, low-growth stocks). A stock is classified as growth if the net score equals or exceeds the “growth threshold” (normally about 25 for large-cap stocks). It is deemed value if its score equals or falls below the “value threshold “(normally about -15 for large-cap stocks). And if the score lies between the two thresholds, the stock is classified as “core.”

The thresholds between value, core, and growth stocks vary to some degree over time, as the distribution of stock styles changes in the market. However, on average, the three stock styles each account for approximately one third of the total free float in each size category.

The Vertical Axis

Rather than a fixed number of “large cap” or “small cap” stocks, Morningstar uses a flexible system that isn’t adversely affected by overall movements in the market. Large-cap stocks are defined as the group that accounts for the top 70% of the capitalization of each geographic area; mid-cap stocks represent the next 20%; and small-cap stocks represent the balance.

Moving from Individual Stocks to Funds

A stock fund is an aggregation of individual stocks and its style is determined by the style assignments of the stocks it owns. By plotting all of a fund’s stocks on the stock style grid, the range of stock styles included in the fund immediately becomes apparent. An asset-weighted average of the underlying stocks’ style and size scores determines a fund’s placement in the Style Box.

Style box assignments for stocks are updated each month. Assignments for funds are recalculated whenever Morningstar receives updated portfolio holdings for the fund.

Fixed-Income Style Box

Domestic and international fixed-income funds focus on the two pillars of fixed-income performance: interest-rate sensitivity and credit quality. Morningstar splits fixed-income funds into three groups of interest rate sensitivity (high, medium, and low) and three credit-quality groups (high, medium, and low). These groupings graphically display a portfolio’s average effective duration and credit quality. As with equity funds, nine possible combinations exist, ranging from short maturity/high quality for the safest funds to long maturity/low quality for the more volatile.

Along the horizontal axis of the style box lies the average term length of a fund’s bond portfolio based on average effective duration. This figure, which is calculated by the fund companies, weights each bond’s duration by its relative size within the portfolio. Duration provides a more accurate description of a bond’s true interest-rate sensitivity than does maturity because it takes into consideration all mortgage prepayments, puts, and adjustable coupons. Funds with an average effective maturity of less than 3.5 years qualify as short term. Funds with bonds that have an average effective duration greater than or equal to 3.5 years but less than or equal to 6 years are categorized as intermediate, and those with maturity that exceeds 6 years are long term. (The duration ranges vary slightly for municipal-bond funds: Less than 4.5 years is short term; 4.5 to 7 years is intermediate; and greater than 7 years is long term.)

If duration data are not available, Morningstar will use average effective maturity figures to calculate the fund’s style box. Although duration is the more accurate measurement, maturity can also be used to gauge the amount of interest-rate risk in a fund’s portfolio. Funds with bonds that have an average effective maturity of less than 4 years qualify as short term. Funds with an average effective maturity greater than or equal to 4 years but less than or equal to 10 years are categorized as intermediate, and those with maturity that exceeds 10 years are long term.

Along the vertical axis of a fixed-income style box lies the average quality rating of a bond portfolio. Funds that have an average credit rating of AAA or AA are categorized as high quality. Bond portfolios with average ratings of A or BBB are medium quality, and those rated below BB are categorized as low quality. For the purposes of Morningstar’s calculations, U.S. government securities are considered AAA bonds, nonrated municipal bonds generally are classified as BB, and all other nonrated bonds are considered B.

For hybrid funds, both equity and fixed-income style boxes appear.

Using the Style Box

In general, a growth-oriented fund will hold the stocks of companies that the portfolio manager believes will increase earnings faster than the rest of the market. A value-oriented fund contains mostly stocks the manager thinks are currently undervalued in price and will eventually see their worth recognized by the market. A blend fund might be a mix of growth stocks and value stocks, or it may contain stocks that exhibit both characteristics.

Understanding how different types of stocks behave is crucial for building a diversified, style-controlled portfolio of stocks or mutual funds. The Morningstar Style Box helps investors construct portfolios based on the characteristics-the style factors-of all the stocks and funds that portfolio includes.

For additional information, please see: Morningstar Style Box Methodology

Morningstar tools
The newest selection of the features available as investment tools.

Mutual fund
A general term for a unit trust, OEIC or any other collective investment scheme.

Name
The equity or bond holding.

NASDAQ
An American stockmarket which is best known for its technology companies. NASDAQ (National Association of Securities Dealers Automated Quotations) is the second largest market in America and was the world’s first electronic stockmarket. Listed companies include Cisco, Dell, Intel and Microsoft.

Net acquisitions and disposals
The net impact on cash of the company’s acquisition & disposal strategy.

Net Asset Value (NAV)
The value of the investments in a fund. In the case of a unit trust or OEIC the net asset value per share normally corresponds to the fund´s market price, subject to any sales or exit charge. However, the market price and the net asset value may vary noticeably for an investment trust. (See Discount to NAV and Premium to NAV.)

Net Asset Value Per Share
Net Asset Value PS/Weighted Average Shares In Issue) x 100 = X%
Net Assets = Total Assets – Total Liabilities

Net Assets (Fund)
For Net Assets (Fund), please see Total Net Assets.

Net Currency Exposure
The percentage breakdown by national currency of bond holdings.

Net Gearing
Total Borrowings – Cash & Near Cash/Shareholders Funds x 100 = X%

Net interest
Net of interest paid and interest received.

Net loans
The net impact on cash of the company’s financing strategy via short and long term loans.

Net tangible asset value per share
NTAV per share (p) = (equity interest in shareholders’ funds – intangibles) / No. shares in issue at year end.

Net Tangible Asset Value Per Share (NTAV PS)
Net Tangible Assets/Shares In Issue At Year End (diluted)
Net Tangible Assets = Equity Interest in Shareholders Funds – Intangible Assets

New issue
The same as an IPO or placing.

New York Stock Exchange (NYSE)
The largest and oldest stock stockmarket in America. Based on Wall Street. Its most widely quoted indices are the Dow Jones Industrial Average and the S&P 500.

News Radar
Morningstar´s daily summary of key news stories.

Nikkei
A stockmarket index which measures the performance of Japan´s largest companies.

No load fund
A fund with no initial charge. However, the annual management charge is likely to be higher and there may be an exit charge for investors who only stay in the fund for a short period.

Nominee
A person, or company, in whose name the shares are held, but who holds them on behalf of the actual shareholder. This acts as a means of preserving the anonymity of the actual shareholder and is a way for institutional investors to centralise the administration or individual holdings or their private clients.

Non-equity dividends
Dividends paid to preference shareholders.

Non-executive directors
Independent directors not involved with the day-to-day running of a company who sit on the board in an advisory capacity.

Non-UK turnover
Turnover from non-UK business interests.

Norm EPS Growth
How much the EPS has grown when measured against the previous period. EPS growth (%) = 100 * (This years EPS – Previous EPS) / Previous EPS.

Normalised EPS
Earnings per share refers to the relationship of the profit after tax attributable to each share in issue. Normalised EPS = normalised earnings / weighted shares in issue.

Where:

Normalised earnings = IIMR headline earnings + exceptional charges – exceptional income.

And:

IIMR headline earnings = FRS3 earnings + non-trading losses – non-trading profits. 

North America
Proportion of portfolio invested in the United States and Canada.

NPV
Nil Par Value: A class of share that does not have a designated face value. Also referred to as Par Value.

Number of Funds in Category
The number of funds classified in the same category as this fund.

OEIC
An OEIC (Open-Ended Investment Company) is a collective investment that takes its structure from both a unit trust and an investment trust. An OEIC is single-priced and issues shares like an investment trust. However, rather than buying and selling shares on a stock exchange, people investing in OEICs transact with the fund company.

Several UK fund management companies have converted their unit trusts to OEICs. The motivation for conversion is often cited as a simplification and pre-cursor to offering funds Europe-wide under EU rules.

For our comprehensive list of OEICs that can be filtered by Morningstar category and fund company, we recmmned using our Fund QuickRanktool.

Of portfolio
The percentage breakdown by company size of the fund´s investments.

Offer price
The price at which an investor can buy units from the fund management company.

Olso Bors code
A Norwegian system for numbering financial instruments.

Ongoing Charge
The Ongoing Charge represents the costs you can reasonably expect to pay as an investor from one year to the next, under normal circumstances. Many investors will be used to looking most closely at the Annual Management Charge, but neither this charge nor the Ongoing Charge includes the performance fees incurred so neither is perfect. However, the Ongoing Charge does represent a more accurate cost of fund ownership as it encompasses the fund’s professional fees, management fees, audit fees and custody fees.

Read more in How Much Does My Fund Cost?

Open-end Funds
An open-end fund, or open-ended fund, is a collective investment scheme, more commonly known in the UK as either an OEIC (open-ended investment company) or unit trust.

Investors can buy shares in an open-ended fund direct from the fund provider or via an investment platform or broker. The fund will invest in a group of securities, including but not limited to stocks, bonds and property.

The price at which an investor can purchase shares in a fund will be determined by its Net Asset Value (NAV).

An ETF is a type of open-ended fund that is traded on an exchange and can therefore be bought at a premium or discount to its NAV depending on the current market price of the fund.

Opening price
The opening price of the shares for the day.

Operating Margin
(Trading Profit/Turnover) x 100 = X%
Trading Profit = Normalised Pre Tax Profit + Share of Associates Profit + Net Interest + Rental Income

Operating profit (adjusted)
Operating profit (reported) minus exceptional items.

Operating profit (reported)
Profit before taking into account interest and corporation tax.

Optimiser settings
By selecting this box, the user can make the optimiser behave in a more conservative manner without affecting any of the fundamental targets set above. By default, the funds’ performance score receives a weight of 40%, the risk score 30% and the cost score 30%. The user can emphasise the risk score (raised to 40% at the expense of performance) or the cost score (raised to 40% at the expense of performance).

Option
The right, but not the obligation, to buy (for a call option) or sell (for a put option) a specific amount of a given stock, commodity, currency, index, or debt, at a specified price (the strike price) during a specified period of time. For stock options, the amount is usually 100 shares. Also called option contract.

Ordinary dividends
Dividend paid to holders of ordinary shares.

Ordinary shares
Units of ownership in a company. They possess a greater element of risk to the investor as the investment in the company is affected by market forces and there is no guarantee that the original investment will be returned when they are sold. Ordinary shares entitle the holder to vote on measures at the company’s AGM and to receive dividends but they are the last creditors to receive anything if a company goes bankrupt.

Other
The proportion of the fund invested in other securities such as property or other financial instruments.

Oversubscribed
Defines a deal in which investors apply for more shares than are available. Usually a sign that an IPO will open at a substantial premium.

Par value
The value equal to the face value of a security. A bond selling at par is worth the same amount it was issued for and the value at which it will be redeemed at maturity. Par value of common stock generally has no relationship to the current market value and, therefore, stock is issued with no par value. Par value of preferred stock is used to calculate dividend payments and indicates the amount of assets each preferred share would be entitled to in the case of liquidation of the company.

Paris bourse
The French national stockmarket and part of Euronext which is the combination of the exchanges of Amsterdam, Brussels and Paris.

Passive funds
Another name for funds which track market indices such as the FTSE 100 or the S&P 500. Also called index funds and tracker funds.

Payment date
Payment date is the date when the dividend is payable to shareholders on the register at the Record Date.

Payout ratio
The ratio of retained earnings to dividends paid.

Penny shares
Typically a volatile, high-risk share of a company with generally low market capitalisation. Share price used to be less than 10 pence but can be higher now.

Pension fund
A fund in which an employer and employee contribute funds to create retirement income for the employee.

PEP
A Personal Equity Plan. New investment in PEPs stopped in April 1999 when the government brought in ISAs.

PEP transfer
Funds with this facility accept the proceeds of investment in a Personal Equity Plan.

PER
See P/E

Percentile Rank in Category
Measures, on a scale from 1-100 – with 1 as the top score and 100 as the worst – a fund´s performance compared to the rest of the funds in the same category.

Performance
How an investment has grown [or fallen] over a set period of time. Investors may compare the performance of funds with similar investment strategies to compare funds.

Performance evaluation
A two-step process of appraising a fund manager’s results. First, it examines whether the manager outperformed the chosen benchmark [that is the investment objective of the fund was to return 2% more than the FTSE 250 – has this been done?]. Second, it assesses the methods employed to realise this return [that is did they follow the original investment plan?].

Performance fee
A payment awarded to a fund manager if certain performance levels are attained in a set period of time. Often, it refers to the achievement of a return on a fund over and above the investment objective. Funds with performance fees are relatively rare and are usually offshore funds or hedge funds.

Performance fee index
A benchmark against which the performance fee for a fund is calculated.

PIA
The Personal Investment Authority (PIA). Now subsumed under the Financial Services Authority.

Placing
A means of raising new capital by entering into an arrangement with major investors who agree to acquire a specified number of new shares.

Plowback ratio
The opposite of the payout ratio, retained earnings minus dividends over retained earnings and possibly suggesting more growth potential for a firm because they are investing in their business.

Polarisation
The system of advice that divides advisers between those tied to one management group and independent financial advisers (IFAs). This distinction is currently under review by the Financial Services Authority.

Portfolio
Holdings data for the individual fund.

Portfolio manager
See fund manager.

Portfolio Profile
An overview of the investment portfolio of the fund.

Portfolio Tool
Enables users to aggregate their fund holdings and examine the characteristics of their entire portfolio. It includes a Portfolio X-Ray facility which allows users to break down their total fund holdings by numerous criteria including investment style, stockmarket sector and geographic regions.

Portfolio Types
There are two types of portfolios: quick and transaction portfolio. A quick portfolio is the easiest way to create a portfolio. A transaction portfolio offers full-fledged portfolio tracking including buys, sells, splits and dividends.

Pound-cost averaging
A mathematical feature of regular savings schemes which enables them to reduce investment risk. If a fund’s unit (or share) price falls then more units can be bought for a given amount of money. As a result the volatility of the investment is lower.

Pre-tax profit
Profit after all expenses including interest but before corporation tax.

Preference shares
Shares that pay dividends at a specific rate while the dividends of ordinary shares fluctuate or may not be given at all. They do not normally carry a vote unless dividends fall into arrears. Represents a claim prior to common shareholders on the earnings of a company and on the assets in the event of liquidation.

Preferred stock
Stock with no voting rights, but rights to dividend before common stockholders and priority in liquidation.

Prelims.
The Preliminary Announcement, being the initial report to the Stock Exchange of the company’s financial results for the year.

Premium
The amount by which a bond or preferred stock may sell above its face value. In new issues of stock, it is the amount by which the trading price of the shares exceeds the offering price. Regarding bonds, it is the amount by which a bond sells above its face value. For example, a bond that has a face value of £500 would sell at a £200 premium when it costs £700.

Premium to NAV
When an investment trust is trading at a premium to NAV, it means that the underlying assets in the investment trust are worth less than the net asset value of the fund. Premium to NAV is normally expressed as a percentage and an investor will be paying more for the shares that than the shares themselves are worth.

Previous analyses
The most recent analysis pieces.

Previous commentaries
The most recent commentaries.

Previous fund news
The most recent news stories.

Previous interviews
The most recent interviews.

Price (Optional)
Enter the price paid for the shares or units.

Price Earnings Growth Factor (PEG)
PER (Price Earnings Ratio)/Normalised EPS Growth

Price Earnings Ratio (PER)
Share Price (Close on Last Trading Day)/Normalised EPS = X Times

Price Earnings Ratio (PER) (Forecast)
Share Price (Close on Last Trading Day)/EPS Prospective = X Times

Price risk
The risk faced by investors that their asset or portfolio will change price while they hold it.

Price to Cashflow (PCF)
Share Price (Close on Last Trading Day)/Cashflow Per Share = X Times
Cashflow Per Share = Cashflow/Average Shares In Issue (Last Financial Year) 
Cashflow = Cash From Operating Activities + Return On Investments + Servicing Of Finance – Taxation

Price to Sales (PS)
Share Price (Close on Last Trading Day)/Sales Per Share = X Times
Sales Per Share = Turnover/Average Shares In Issue (Last Financial Year)

Price to Tangible Book Value (PTBV)
Latest Share Price/Tangible Book Value PS = X Times
Where 
Tangible Book Value PS = Tangible Book Value / Shares In Issue At Year End (Diluted) 
Tangible Book Value = Share Capital & Reserves – Intangible Assets

Price-to-Book (P/B)
A financial ratio calculated as current share price divided by book value per share. It compares how the market values a company to the value on the company’s books. For example a company trading at several times its book value tends to indicate a growth stock where investors believe the book value will rise in the future. Typically a company with a low P/B means that investors think that the firm´s assets have been too highly valued on its financial statements.

Price-to-Cash Flow (P/CF)
A financial ratio calculated as current share price divided by cash flow per share – where cash flow is the spending and receiving of cash in a business. For example, a P/CF of 10 indicates that for each £1 that flows through that company, the stock price is £10. Optimal P/CF ratios differ from industry to industry. P/CF ratios will be much lower in capital-intensive industries than in ones such as software.

Price-to-Earnings (P/E)
PA financial ratio calculated as current share price divided by current earnings per share (EPS= earnings for the last 12 months divided by the number of common shares outstanding). Also known as the multiple as in the multiple of earnings at which a stock is priced. Companies that investors expect to see grow strongly tend to have high P/E ratios while mature companies may often relatively low P/Es. For example, a share selling at £16 per share with projected earnings next year of £4 has a P/E ratio of 4 while that same stock with projected earnings next year of £6 has a P/E ratio of 2.67. The reverse ratio of P/E calculates earnings yield and is calculated as 1 divided by the P/E ratio. For example, if you had a P/E Ratio of 20, the earnings yield ratio would be 1/20, which equals 0.05. Therefore, an investor would typically expect to receive a 5% yield on an investment with a company with a P/E of 20.

Primarily Invests In
The size of companies making up the biggest proportion of a fund.

Primary country listing
The country in which a company has its main stock exchange listing.

Private company
A company whose shares are not traded on the open market.

Private investor
An individual who purchases securities for him/herself, as opposed to an institutional investor. Also called individual, small or retail investor.

Private placement
A company’s way of raising capital by going to a private exclusive group of investors rather than going public.

Profit after tax
Profit after taking into account of all expenses including interest and corporation tax, but before taking into account any dividends payable.

Profit and loss
The profit and loss account summarises the result of last year’s trading in figures. It is a summary of the expenditure and income of a company over the financial year.

Profit margin
Net income divided by revenue, measuring how efficient a company is at controlling costs.

Proprietary trading
Trading on a firm’s own account rather than trading on behalf of someone else in order to benefit from the market.

Prospectus
A fund´s formal written statement, issued before it issues shares to the public. In this statement the fund sets forth its proposed purposes and goals, and other facts (for example, history and investment objective) that an investor should know to make an informed decision.

Protected fund
A fund which is structured to limit its losses to a certain amount within a certain period. For example, it may be able to lose a maximum of 5% of its value over three months.

Proxy fight
A fight for control started by shareholders in an attempt to gain change in leadership of a company by asking other investors for their corporate votes and support.

PSS
Profit sharing scheme. A scheme by which employees share in the profits of a business, usually through some type of share ownership.

Public company
A company that has shares that investors are able to acquire in the open market.

q ratio
A measure of stockmarket valuation devised by James Tobin. Takes the total value of the stockmarket and divides it by corporate net worth. A high q shows that the market is overvalued and a low q shows that it is cheap. Andrew Smithers, an adviser to fund managers, is a leading exponent of q in the UK.

Quarter 1
The performance of the fund from January to March inclusive.

Quarter 2
The performance of the fund from April to June inclusive.

Quarter 3
The performance of the fund from July to September inclusive.

Quarter 4
The performance of the fund from October to December inclusive.

Quarterly returns
How the fund has performed on a quarterly basis.

Quick portfolio
The simple type of portfolio tool. Only percent of total holding is entered, only current holdings can be analyzed.

Quick Ratio
Total Current Assets – Stocks & Work In Progress)/Current Liabilities

Quick stats
Overview of key data for a fund.

Quicktake
The Quicktake report provides a detailed standardised factsheet on all the funds in the Morningstar universe. Its standard format makes it easy to use and to make comparisons with other funds. Quicktake reports consist of four detailed sections: * Overview * Rating and risk * Portfolio * Management

R-Squared
A measure of the percentage of a fund´s movements that can be accounted for by changes in its benchmark index. An R-squared of 100 indicates that a fund´s movements are perfectly correlated with its benchmark. Thus index funds that invest only in S&P 500 stocks typically could have an R-squared close to 100. Conversely, a low R-squared indicates that little of the fund´s movements can be explained by movements in its benchmark index. An R-squared measure of 35, for example, means that only 35% of the fund´s movements can be explained by movements in the benchmark index. R-squared can be used to ascertain the significance of a particular Beta. Generally, a higher R-squared will indicate a more reliable Beta. If the R-squared is lower, then the beta is less relevant to the fund´s performance.

Record date
Record date is the date on which a shareholder must officially own shares in order to be entitled to the dividend.

Redemption fee
A charge that some fund groups levy if an investor exits a fund before a certain time. Also called a back-end load or a deferred sales charge.

Redemption fee
For Redemption Fee, please see Exit Charge.

Region
Geographical area of the world.

Regional breakdown
The percentage of the fund invested in each geographical area with the largest listed first.

Registrar
Registrars are commercial companies that maintain the register of shareholders for quoted companies. Registrars may also be paid by their client companies to send out company communications with shareholders and process responses.

Regular savings
A scheme that allows investors to invest a regular sum into a fund every month. The minimum is normally £50.

Related articles
A link, designated by a keyword, to editorial pieces covering a similar topic.

Related links
Connections to relevant web pages. Includes internal links such as Category, Fund Companies and Funds information and external links such as company websites or additional reports.

Relative Category
The breakdown by asset type of the portfolio compared to the average of all of the funds in its Morningstar Category. For example, if the Median Market Cap (Mil) of a fund is 2000 and the Relative Category column says 0.5, the fund’s median market cap is about half that of the category average. A second example looks at the Regional Breakdown of a fund. If in the UK row, the “% of Equity” column for the fund reads 10% and the Relative Category column says 5.0, the fund has approximately five times as much of its assets invested in the UK than does the average fund in its Morningstar category.

Renumeration committee
The remuneration committee consists of non-executive directors and decides the pay of the executive directors and approves the pay of other employees on the recommendation of the executive directors.

Reserves
Profits accumulated by the business and not distributed by dividends.

Retail
Proportion of portfolio invested in companies operating in areas such as apparel, department stores, food stores, and miscellaneous shops. Some examples of companies in this sector include French Connection, Gap, House of Fraser, Starbucks and Tesco.

Retail Price Index (RPI)
A measure of inflation. This index tracks a basket of the goods and services, such as clothing, food, household goods and medical care, purchased by an average consumer.

Retained profits
The profits of a company which have been retained i.e. not distributed to shareholders as dividends.

Return
The profit that an investor can receive from an investment.

Return on Capital Employed (ROCE)
(Return/Capital Employed) x 100 = X%
Return = Normalised Pre Tax Profit + Interest Paid = X%
Capital Employed = Share Capital & Reserves + Preference Capital + Minority Interests + Provisions + Total Borrowings – Intangible Assets (Net)

Reverse acquisition / Reverse take-over
A technique used by a private company to go public without jumping through all the regulatory hoops that going public usually requires. The private company acquires majority ownership in a publicly listed company that has no assets or liabilities (called a shell), changes the company’s name, and installs its management and board of directors.

Rights issue
A means of raising new capital whereby existing shareholders agree to buy new shares at an agreed price, which will normally be at a discount to the current market price.

Risk Profile
The optimiser comes with 5 pre-selected asset allocation models, ranging from Preservation to Aggressive. Note for users of Morningstar’s AWS Needs Assessment tool: these 5 allocations are chosen from the 21 mean-variance efficient asset mixes on display. These 5 risk profiles are only distinguished by their allocation to cash, bonds and the 3 classes of equity. They are otherwise similar and assume neutrality/normality for style, capitalisation, economic sectors and credit quality, as long as the user does not override these settings. All default weights and settings appear in the relevant boxes below. The middle allocation ‘Balanced’ always appears when this page is first opened.

Risk Profile – This Fund
The arrow on this risk profile bar shows the risk of the fund as measured by standard deviation. Standard deviation measures the risk of a fund by telling you how, on average, the performance of the fund moves away from the mean. A high standard deviation indicates that the performance varies a lot, whereas a low standard deviation tells you that the performance has been more stable. The funds falling in the Low range have standard deviations between 0 and 13.34, in the Moderate range between 13.34 and 26.67, and in the High range above 26.67.

ROCE
Return on Capital Employed measures the return achieved on invested and borrowed capital (the capital employed). ROCE (%) = 100 * return (annualised)/capital employed.

Where:

Return (annualised) = pre-tax profit + interest paid (In the event of the financial period being greater or less than 12 months in duration, the return is adjusted to an annualised basis)

And

Capital employed = ordinary capital reserves + preference capital + minority interests + provisions + total borrowings – intangibles

ROE
Return on Equity is a measure of the profitability of a company expressed as the return achieved on invested equity capital (shareholders funds attributable to equity interests i.e. ordinary capital reserves + provisions).ROE (%) = 100 * return (i.e. normalised earnings)/ invested equity capital.

S&P 500
A stockmarket index which represents the performance of 500 of America’s largest companies.

Sales charge (maximum)
The highest fees a fund group levies for investment in the fund.

Savings
The smallest amount permitted for regular contributions to a savings plan.

SAYE
Save as you earn.

Scrip issue
See Bonus issue.

Search by word
Enter text to search for articles on that term.

Search in category
Pick an Articles category such as news radar or commentary from the drop down menu to narrow a search

Sector
Morningstar divides stocks into 12 sectors according to their primary business, grouped into three larger “super-sectors”. The Software, Hardware, Telecom, and Media sectors make up the Information group; Health Care, Consumer Services, Business Services, and Financial Services make up the Service group; and Consumer Goods, Industrial Materials, Energy, and Utilities make up the Manufacturing group. Because sectors can differ greatly in their characteristics, comparing a stock with its sector rather than the market as a whole is generally a better way of putting it in the proper context.

Sector Funds
Funds that invest in one particular sector of the economy such as healthcare, technology, media, biotechnology or financials. Because of their narrow scope sector funds tend to be more volatile than funds with a broader investment objective, since the overall market may alternate between favouring the different sectors.

Securities and Exchange Commission (SEC)
The main American financial regulatory body. The SEC sets the rules and regulations which all companies with registered US share must follow.

Security
Debt, equity, derivatives or any tradable asset.

SEDOL
SEDOL stands for Stock Exchange Daily Official List (SEDOL) number. It is a seven digit European security identifier number.

Select Holding
Widen or narrow the number of transactions displayed.

Select type of optimisation
The optimiser can rebalance an existing portfolio and create a new one. These activities can be conducted separately or jointly at the same time. Rebalancing will only deliver a result if an existing portfolio is present.

Services
Proportion of portfolio invested in companies operating in areas such as freight, airlines, business services, publishing, railroads, hotels, resorts, restaurants, personal services, recreational services and movies. Some examples of companies in this sector include British Airways, Pearson, Pizza Express, Securicor and Thistle Hotels.

Share capital
The nominal value of shares paid into the company by shareholders at the time(s) shares were issued, carried on the balance sheet.

Share capital
The total market value of equity assets on issue as reported in the balance sheet. This may include ordinary shares, preference shares and convertible equity.

Share certificate
The document that records the shareholders stake in the company. An indication of ownership to be returned on the sale of the holding.

Share Price
The share mid price, half way between the bid and ask price.

Share price standard deviation
For property and investment companies, used as a measure of risk and highlights the variability of a company’s stock price.

Shareholder
A person, institution or company who owns shares in a company or fund. For company shareholders, along with the ownership, comes a right to dividends and the right to vote on certain company matters, including the board of directors. Also called stockholder.

Shareholder discount
Can mean either a discount that shareholders receive as a customer of the company they own, or the discounted share price that shareholders receive when reinvesting dividends.

Shareholder’s equity
The difference between assets and liabilities. The equity financing of a company.

Shareholders funds
A measure of the shareholders’ total interest in the company represented by the total share capital plus reserves.

Shares
A unit of ownership in a company or investment fund. The American term is stocks.

Shares in issue
The current number of ordinary shares in issue.

Shares outstanding
The average number of shares a public company had on the market during a certain period of time, usually a quarter or a year. This figure is used to calculate earnings per share and other per-share numbers.

Sharpe Ratio
A risk-adjusted measure developed by Nobel Laureate William Sharpe. It is calculated by using standard deviation and excess return to determine reward per unit of risk. The higher the Sharpe Ratio, the better the fund´s historical risk-adjusted performance. The Sharpe ratio is calculated for the past 36-month period by dividing a fund´s excess returns by the standard deviation of a fund´s excess returns. Since this ratio uses standard deviation as its risk measure, it is most appropriately applied when analysing a fund that is an investor´s sole holding. The Sharpe Ratio can be used to compare two funds directly on how much risk a fund had to bear to earn excess return over the risk-free rate.

Shell
A company with no real assets or operations.

Short (sell shares short)
Betting on a falling price. Being “short” a security means to have sold it without owning it. A fund or individual may sell a security that the fund/individual does not presently own and before settlement of the transaction, the fund/individual will purchase an equivalent amount of that security in order to satisfy the sale. This strategy entails anticipating that the price will fall and it will be possible to buy the securities at a lower price later than they were sold for. The profit made is the spread between the two prices.

SICAV
A SICAV, Sociétés d’investissement à Capital Variable, is an open-ended investment fund, similar to the UK’s unit trust. Luxembourg-domiciled trusts are typically SICAVs.

Sicovam
Societe Interprofessionnelle pour la Compensation des Valeurs Mobilieres. French system for numbering financial instruments which is run by the trade body for French brokers.

SIS
Staff incentive scheme.

Size
The size of the last share trading transaction.

Small cap
The proportion of the fund invested in companies categorised as small capitalisation companies [small caps]. A determination of large, mid or small cap is made by separating all of the stocks into 10 global regions. The largest 5% are large caps, the next 15% are mid caps and the bottom 80% are small caps.

Smart money
Refers to the investments of experts or knowledgeable investors.

Socially responsible fund
A fund which uses moral as well as financial criteria when selecting assets for its portfolio. Sometimes used to refer to funds which positively seek to invest in firms which are considered ethical.

Soft market
A market in which buyers have purchasing power because there are more sellers than buyers.

Software
Proportion of portfolio invested in companies engaged in the design and marketing of computer operating systems and applications. Examples include Microsoft, SAP and Siebel Systems.

Solicitor
The firm of lawyers that represents the company on legal matters.

Sortino Ratio
The Sortino Ratio is similar to Sharpe Ratio except it uses downside risk (Downside Deviation) in the denominator. It was developed in early 1980’s by Frank Sortino. Since upside variability is not necessary a bad thing, Sortino ratio is sometimes more preferable than Sharpe ratio.

Special cash
Special Cash Dividends are ‘one-off’ dividends that aren’t expected to reoccur and are paid out completely in cash.

Split
A split happens when a company increases the number of its outstanding shares without altering the proportionate amount of shares each shareholder owns. Stock splits enable smaller investors access to high-priced shares. For example, a share currently trading at 900p per share could be split and replaced by three 300p shares. Shares in funds can also in the same way, leaving each investor with more shares representing the same monetary investment.

Spread
For Spread, please see Bid-Offer Spread (Fund).

SPS
Share participation scheme.

SSS
Share save scheme.

Stability pact
The framework of rules which governs economic behaviour in the euro-zone. For example, budget deficits should not exceed 3% of GDP except in exceptional circumstances. Its full name is the stability and growth pact.

Standard & Poor’s (S&P)
A company which provides fund information and is also known for rating bonds.

Standard deviation
Standard deviation of fund returns measures how much a fund´s total returns have fluctuated in the past. The term volatility is often used to mean standard deviation. This number is useful for two reasons. Firstly, because the more a fund´s return fluctuates, the riskier the fund is likely to be; standard deviation facilitates comparisons across all funds, from cash to emerging market equities. Secondly because funds that have been more volatile in the past tend to be the more volatile in the future. In that sense, standard deviation is a useful warning sign. The standard deviation is expressed in percentage terms, just like the returns. We calculate it based on the fund´s most recent 36 monthly returns. How to use it? The simplest use is to compare funds. Additionally, you can estimate the range of returns that a fund can experience in any given year. This gives a useful estimate of how low returns can go. To perform this simple estimate, you just need two numbers we provide: average return and standard deviation. You can estimate that, 95% of the time, the lowest annual return will be equal to the average return minus twice the standard deviation. Conversely, the maximum typical return, 95% of the time, will be equal to the average return plus twice the standard deviation. Example 1. A money market fund had an annual average return of 6%, with a standard deviation of 1%. The typical maximum annual return you would expect is: 6+1+1= 8%; the typical lowest return you would expect is 6-1-1=4%. In other words, if the fund continues to behave as it has in the past, 95% of the time, its annual returns will be between 4% and 8%. Example 2. An equity fund has experienced an average return of 18%, with standard deviation of 30%. Applying the same calculation, you can see that this fund´s typical annual returns will be between a negative 42% and a positive 78%. So even in good times, you can obtain an estimate of the downside for a given fund. Need a more technical explanation? We are able to estimate extreme returns in such a way, because monthly returns follow more or less what is known as a normal distribution, popularly known as a “bell-shaped” curve. One of the properties of such a distribution is that you know that 95% of the time, returns will be comprised between average +/- 2 standard deviations. 67% of the time, returns will be comprised between average +/- 1 standard deviation. For detailed calculations, you can go to our “Calculations” page. Of course, past volatility is no perfect predictor of future behaviour, but the information provided by standard deviation is too important to be overlooked. Another limitation of volatility is that, if you hold several funds, you can average the returns, but not the volatility: the aggregate volatility is likely to be lower than the average of the various funds individual volatilities. That is the benefit of diversification.

Staples
Proportion of portfolio invested in companies operating in areas such as cosmetics, grooming supplies, distillers, breweries, food and food production, meats, dairy, confections, and tobacco. Some examples of companies in this sector include British American Tobacco, Body Shop, Boots, Cadbury Schweppes, Coca-Cola, Diageo and Philip Morris.

Status
The listing status of the stock i.e. whether is it listed on the Alternative Investment Market (AIM) or fully listed.

Stock Exchange
A market on which shares or other securities are bought and sold. Examples include the London Stock Exchange (or LSE) and AIM.

Stockbroker
A financial intermediary who buys and sells securities for clients.

Stockholder
Taking the traditional definition, stockholders are lenders and are accounted among the company’s creditors. Interest on stocks must be paid ahead of any dividend to shareholders. Share or equity capital is money permanently supplied in exchange for a stake in the ownership of the business. See also shareholder.

Stockmarket average
An arithmetic mean return of a collection of stocks chosen to characterize the overall market. Unlike an index, a stock market average is not weighted. The most frequently quoted average is the Dow Jones Industrial Average.

Stocks
A stock is an ownership interest in a company. When you buy a stock, you become a business owner, and the value of your ownership stake will rise and fall according to the success of the underlying business.

Stockholders are entitled to the profits, if any, generated by the company after everyone else—employees, vendors, lenders—gets paid. Because stockholders only get the profits left over after everyone else is paid, they shoulder more risk than bondholders (see below), who get paid a fixed amount regardless of how well a company does (unless it goes bankrupt). However, if a company generates lots of profits, shareholders enjoy the highest (theoretically unlimited) returns.

Companies usually pay out their profits to investors in the form of dividends, or they reinvest the money back into the business. Dividends provide shareholders with a cash payment, and reinvested earnings offer shareholders the chance to receive more profits from the underlying business in the future (perhaps in the form of future dividends and/or stock appreciation).

Style Box diversification
The percentage of the entire portfolio of funds invested in each of the nine Style Box sections.

Subsidiary
A company that is held by a parent company. The parent company holds control by owning more than 50% voting stock.

Switching fee
A charge levied by a fund management group when an investor moves money from one fund to another within the same group. For example, the investor moves from Fund Company A´s Asian Growth Fund to its UK Equity Fund. The majority of funds sold in the UK do not levy a switching fee or else they reduce it over time.

Synergy
The value created in joining two companies that exceeds the sum of the two company’s values.

Systematic risk
The risk that cannot be eliminated through diversification of a portfolio. The risk that is present in the entire market.

Take-over
When one company approaches another company, making an offer to the latter’s shareholders, seeking to acquire their shares in sufficient quantities to take control. If the company that is being taken over is listed on the Stock Exchange, a strict protocol of rules and regulations exist to protect the interests of shareholders. A time limit is set for acceptance of the offer. If the company making the offer gets control of 90% or more of the shares, it has a legal right to acquire the remaining 10% of the shares at the offer price.
A take-over bid may be friendly, recommended by the board of the company being taken over, or it may be hostile, rejected by the board with the company making the offer going direct to shareholders.

Tangible asset
A physical asset.

Tangible fixed assets
A fixed asset that has a physical presence e.g. a building.

Tariff
A tax levied on certain imports. Used to control foreign goods, protect domestic.

Tax Free Savings
The tax shelter schemes through which this fund is available.

Tax Year Return
The tax year return is calculated using the returns figures for the four quarters, in the most recent tax year. The formula for the calculation is as follows:
Tax Year Return [%] = ((1+ r1/100)*(1 + r2 /100)*(1+r3/100)*(1+r4/100)-1)*100
Where r1, r2, r3 and r4 are the quarterly returns, respectively.

Taxation (cash flow statement)
Payment of tax made during the financial year.

Technology
Proportion of portfolio invested in companies operating in areas such as aerospace components, business data processing, computer leasing, electrical equipment, specialised machinery, and precision instruments. Examples of companies in this sector include Apple, BAE Systems and Fujitsu.

Telecommunications
Proportion of portfolio invested in companies that provide communication services using fixed-line networks or those that provide wireless access and services. Examples include Swisscom, Vodaphone and Telefonica.

TESSAs
Tax-Exempt Special Savings Accounts. A form of savings account which is no longer open to new investors.

The City
London’s financial district. Also known as the square mile.

The Market
Shows the moves of the main global stockmarkets.

Tied agent
An intermediary who can only advise on the funds of one management group. The opposite of an independent financial adviser (IFA) who must offer advice on funds from the full range of groups. This system of advice is currently under review by the Financial Services Authority.

Time
The time of the last share trading transaction.

Top 10 Holdings
The ten largest investments in the entire portfolio of funds.

Top 3 Regions
The three largest areas in which the fund invests.

Top 3 Stock Sectors
The three biggest stockmarket sectors in which the fund is invested.

Top 5 Holdings
The five largest holdings in the fund.

Total assets
Total net fixed assets plus total current assets.

Total current assets
Assets that are expected to be converted into cash within twelve months of the balance sheet date.

Total employee cost
Wage salary, social security and pensions not including director remuneration.

Total liabilities
Total value of goods or services owed by a company.

Total Market Value
The size of a fund. The month-end net assets of the fund. It is recorded in millions of the fund currency denomination (that is millions of pounds for a fund trading in sterling, millions of dollars for a fund trading in the American currency). Note: used to be referred to as “Total Net Assets” (TNA)

Total net assets
The total assets of a company minus its liabilities.

Total net fixed assets
Tangible fixed assets plus fixed investments.

Total Number of Bond Holdings
The amount of investments the fund currently has in bonds.

Total Number of Equity Holdings
The amount of investments the fund currently has in equities [shares].

Total Returns
The absolute return of the fund, expressed as a percentage.

Track Record Extension
The performance history of a share class can start before the fund share class was actually launched. This happens when a new fund share class is launched, for example a ‘clean’ share class that excludes commissions, and it is believed that retail investors will benefit from understanding the performance history of the original share class. In such a case, the performance history of the new share class is extended further back in time by using the performance of one of the older share classes of that fund, or predecessor fund, with specific limitations on when and how an extension will be made. These extended performance track records serve as the basis for performance calculations and peer group comparisons. In all cases Morningstar will only allow a share class performance track record to be extended if there is significant continuity between the donor and recipient share classes, i.e. if the new share class accurately replicates the old share class. More information on Morningstar’s policy can be found here.

Tracker
A fund that matches the returns of a particular index. Also called index funds or passive funds.

Tracking Error
The volatility of the difference in returns between a fund and its benchmark. Also known as active risk. In the context of passive management (tracker fund), tracking error properly describes how well a fund tracks its benchmark. But in relation to active management it is a misnomer: It describes how far the fund manager has strayed from its benchmark, not an error. The measure is nevertheless useful in performance assessment: the higher the active return (outperformance) in relation to the active risk (tracking error) the better.

Trade price
The transaction price of the last shares trade.

Trader
A buyer and seller of securities either for personal gain or for a financial institution.

Trailing Return
Performance figures that cover a rolling period whether annually, monthly, weekly, or daily. For example, on March 14th 2004, the one year trailing return would cover the period from March 14th 2003 till March 14th 2004 and the 1-week trailing return would cover the period from March 7th to March 14th 2004.

Transaction portfolio
The more advanced portfolio tool, that keeps track of all transactions.

Transaction Type
An adjustment to the portfolio such as buying or selling units or shares, receiving a dividend or having the stock split into additional shares.

Transfer agent
A firm engaged by a fund management group to run its shareholder records.

Trasferimento a PEP
L’indicazione PEP (Personal Equity Plan) Transfer spiega se un fondo accetta o meno il deposito proveniente da un piano azionario personale, il PEP, uno schema di investimento in azioni non gravato da tasse. I nuovi investimenti in PEPs sono fermi dall’aprile 1999, quando il Governo ha introdotto gli Individual Savings Accounts (ISAs) che prevedono regole di investimento più leggere. Per ulteriori dettagli, consultare la sezione del sito Morningstar sugli ISAs.

Treasury bill
A US government debt obligation with maturity of less than one year.

Treynor Ratio
Treynor Ratio is a measurement of efficiency utilizing the relationship between annualized risk-adjusted return and risk. Unlike Sharpe Ratio, Treynor Ratio utilizes “market” risk (beta) instead of total risk (standard deviation). Good performance efficiency is measured by a high ratio.

Turnover
A measure of the rate of trading activity for a fund during the previous year. It is shown as a percentage of the average total assets of the fund. For example, a turnover rate of 20% means that the value of trades represented one-fifth of the assets of the fund. However, a turnover ratio of 100% or more does not necessarily suggest that all securities in the portfolio have been traded. In practical terms, the resulting percentage loosely represents the proportion of the portfolio´s holdings that have changed over the past year.

Type
The likely type of the last trading transaction, decided by whether the trade price is closer to the displayed bid or ask price. If the trade price is exactly between the two, a “?” is displayed as the type of trade cannot be determined.

UCITS
Undertakings for Collective Investment in Transferable Securities (UCITS) refers to a European Union directive that establishes the terms under which a fund domiciled in one EU member state can be marketed in all EU countries. UCITS aims to simplify investment regulations across EU borders and increase investor protection.

UK
Proportion of portfolio invested in the United Kingdom.

UK Domiciled Funds
UK-domiciled Funds are those open-end funds available for sale and domiciled in the UK.

UK Primary Funds
Open-end fund providers may issue multiple share classes of each fund. For example, they may an Inc (income) share class, which pays out a dividend to shareholders; and an Acc (accumulate) share class, which automatically reinvests dividends on the shareholder’s behalf. Or they may issue a share class for institutional investors, perhaps with an initial investment amount over £1 million and a lower annual management fee; and another for retail investors, perhaps with an initial investment amount of just £50 and a higher annual management fee.

In order to make it easier for the end-investor to filter and screen for funds on Morningstar.co.uk, we offer the option to search only by UK Primary Fund share class. The UK Primary Fund share class is the fund share class that we deem to be the most retail version of a fund. Searching for only UK Primary Funds will deliver just one share class of each fund, so your results won’t be skewed by multiple versions of the same fund.

An open-end fund is a collective investment scheme, more commonly known in the UK as either an OEIC (open-ended investment company) or unit trust.

Umbrella fund
A general fund holding a range of sub-funds with separate individual investment strategies. Investors can sometimes move from one fund to another at a reduced cost.

Unfettered
A term usually used in relation to a fund of funds. It means the fund of funds can invest in both internal and external funds. The opposite is a fettered fund of funds.

Unit trust
One of the most common forms of investment funds used by retail investors. Increasingly they are being replaced by Open ended investment companies.

Unit value
The price of a single share in a unit trust.

Unit-Linked
Refers to pension plan contributions used to buy units in an approved investment fund.

Utilities
Proportion of portfolio invested in companies operating in areas such as gas, electricity or water supply. Examples include E.ON, Electrabel and Veolia.

Valoren
A Swiss system for numbering financial instruments.

Valuation
Refers to the act of assigning a price to a company or asset.

Valuation Ratios

Price/Earnings Projected

Price/projected earnings for a stock is the ratio of the company’s most recent month-end share price to the company’s estimated earnings per share (EPS) for the current fiscal year. If a third-party estimate for the current year EPS is not available, Morningstar will calculate an internal estimate based on the most recently reported EPS and average historical earnings growth rates. Price/projected earnings is one of the five value factors used to calculate the Morningstar Style Box. For portfolios, this data point is calculated by taking an asset-weighted average of the earnings yields (E/P) of all the stocks in the portfolio and then taking the reciprocal of the result.

Benefits

The P/E ratio relates the price of the stock to the per-share earnings of the company. A high P/E generally indicates that the market will pay more to obtain the company because it has confidence in the company’s ability to increase its earnings. Conversely, a low P/E indicates that the market has less confidence that the company’s earnings will increase, and therefore will not pay as much for its stock. In most cases high average P/E ratio indicates a manager has paid a premium for stocks that have a high potential for increased earnings. If the average P/E ratio is low, the manager may believe that the stocks have an overlooked or undervalued potential for appreciation.

Origin

Morningstar generates this figure in-house based on stock statistics from our internal equities databases. For stocks, this figure is calculated monthly. For funds and portfolios, Morningstar updates this figure upon receipt of the most-recent portfolio holdings from the asset manager.

Price/Book Projected

Price/book (projected) for a stock is the ratio of the company’s most recent month-end share price to the company’s estimated book value per share (BPS) for the current fiscal year. Book value is the total assets of a company, less total liabilities. Morningstar calculates internal estimates for the current year BPS based on the most recently reported BPS and average historical book value growth rates. Price/book (projected) is one of the five value factors used to calculate the Morningstar Style Box. For portfolios, this data point is calculated by taking an asset-weighted average of the book value yields (B/P) of all the stocks in the portfolio and then taking the reciprocal of the result.

Benefits

The price/book ratio can tell investors approximately how much they’re paying for a company’s tangible assets, based on accounting valuations. Assets are usually valued on a company’s books at the historical acquisition cost, less any depreciation. The book value may be different than the current market value for those assets and the stock price may reflect that. Also, book value often excludes intangible assets, such as patents, trademarks, and brand names; therefore, companies with a lot of intangible assets often have larger price/book ratios. Value investors frequently look for companies or portfolios that have low price/book ratios.

Origin

Morningstar generates this figure in-house based on stock statistics from our internal equities databases. For stocks, this figure is calculated monthly. For funds and portfolios, Morningstar updates this figure upon receipt of the most-recent portfolio holdings from the asset manager.

Price/Sales Projected

Price/sales (projected) for a stock is the ratio of the company’s most recent month-end share price to the company’s estimated sales per share (SPS) for the current fiscal year. Morningstar calculates internal estimates for the current year SPS based on the most recently reported SPS and average historical sales growth rates. Price/sales (projected) is one of the five value factors used to calculate the Morningstar Style Box. For portfolios, this data point is calculated by taking an asset-weighted average of the sales yields (S/P) of all the stocks in the portfolio and then taking the reciprocal of the result.

Benefits

Price/sales is a valuation measure that indicates how much an investor is paying for a revenue stream. Because revenue measures are less subject to accounting standards than many financial statement figures, this valuation measure is more useful than many others in comparing stocks from different countries. Still, without information about the profit margins of the underlying stocks, this statistic is of limited use. This is less of a problem for specialty portfolios, since margins across specific industries are more consistent.

Origin

Morningstar generates this figure in-house based on stock statistics from our internal equities databases. For stocks, this figure is calculated monthly. For funds and portfolios, Morningstar updates this figure upon receipt of the most-recent portfolio holdings from the asset manager.

Price/Cash Flow – Projected

Price/cash flow (projected) for a stock is the ratio of the company’s most recent month-end share price to the company’s estimated cash flow per share (CPS) for the current fiscal year. Cash flow measures the ability of a business to generate cash and it acts as a gauge of liquidity and solvency. Morningstar calculates internal estimates for the current year CPS based on the most recently reported CPS and average historical cash flow growth rates. Price/cash flow (projected) is one of the five value factors used to calculate the Morningstar Style Box. For portfolios, this data point is calculated by taking an asset-weighted average of the cash flow yields (C/P) of all the stocks in the portfolio and then taking the reciprocal of the result.

Benefit

The price/cash flow ratio can tell investors approximately how much they’re paying for a dollar of cash flow. Because of differences in accounting standards across the globe, price/earnings ratios are not always reasonable for comparing companies from different countries. Price/Cash Flow attempts to provide a consistent standard of comparison.

Origin

Morningstar generates this figure in-house based on stock statistics from our internal equities databases. For stocks, this figure is calculated monthly. For funds and portfolios, Morningstar updates this figure upon receipt of the most-recent portfolio holdings from the asset manager.

Dividend Yield – Projected

Dividend yield (projected) for a stock is the percentage of its stock price that a company is projected to pay out as dividends. It is calculated by dividing estimated annual dividends per share (DPS) for the current fiscal year by the company’s most recent month-end stock price. Morningstar calculates internal estimates for the current year DPS based on the most recently reported DPS and average historical dividend growth rates. This is one of the five value factors used to calculate the Morningstar Style Box. For portfolios, this data point is calculated by taking an asset-weighted average of the dividend yields of all the stocks in the portfolio.

Benefit

When companies make a profit, they can either share that profit with shareholders in the form of a dividend, or they can reinvest that money into the business. High dividend yields are often indicative of value stocks. Growth stocks tend to reinvest profits back into the company and therefore have low or no dividends.

Origin

Morningstar generates this figure in-house based on stock statistics from our internal equities databases. For stocks, this figure is calculated monthly. For funds and portfolios, Morningstar updates this figure upon receipt of the most-recent portfolio holdings from the asset manager.

Long Term Projected Earnings Growth

The long-term projected earnings growth rate for a stock is the average of the available third-party analysts’ estimates for three- to five-year EPS growth. Long-term projected earnings growth is one of the five growth factors used to calculate the Morningstar Style Box. For portfolios, this data point is the share-weighted average of the projected earnings growth estimates for all the stocks in the portfolio. (The share-weighted average is more accurate than an asset-weighted average for this type of calculation.)

Benefits

Investors and institutions trade stocks based on their expectations for how stocks will perform in the future. The long-term projected earnings growth rate summarizes stock analysts’ estimates for how quickly a company will grow its earnings per share. This measure helps Morningstar determine how strong the overall growth-orientation is for a stock or portfolio.

Origin

Morningstar generates this figure in-house based on stock statistics from our internal equities databases. For stocks, this figure is calculated monthly. For funds and portfolios, Morningstar updates this figure upon receipt of the most-recent portfolio holdings from the asset manager.

Historical Earnings Growth

The historical earnings growth rate for a stock is a measure of how the stock’s earnings per share (EPS) has grown over the last five years. Morningstar uses EPS from continuing operations to calculate this growth rate. Historical earnings growth is one of the five growth factors used to calculate the Morningstar Style Box. For portfolios, this data point is the share-weighted collective earnings growth for all stocks in the current portfolio. (The share-weighted average is more accurate than an asset-weighted average for this type of calculation.)

Benefits

The historical earnings growth rate can tell investors how quickly a company’s profits are growing. A company may increase its earnings per share by increasing its sales, decreasing its costs, or reducing the number of shares outstanding in the marketplace. The historical earnings growth rate helps Morningstar determine how strong the overall growth-orientation is for a stock or portfolio.

Origin

Morningstar generates this figure in-house based on stock statistics from our internal equities databases. For stocks, this figure is calculated monthly. For funds and portfolios, Morningstar updates this figure upon receipt of the most-recent portfolio holdings from the asset manager.

Book Value Growth

The book value growth rate for a stock is a measure of how the stock’s book value per share (BVPS) has grown over the last five years. Book value growth is one of the five growth factors used to calculate the Morningstar Style Box. For portfolios, this data point is the share-weighted collective book value growth for all stocks in the current portfolio. (The share-weighted average is more accurate than an asset-weighted average for this type of calculation.)

Benefits

Book value growth tells an investor how quickly a company is building its asset base. A company may increase its book value by buying more assets or decreasing its liabilities. The book value growth rate helps Morningstar determine how strong the overall growth-orientation is for a stock or portfolio.

Origin

Morningstar generates this figure in-house based on stock statistics from our internal equities databases. For stocks, this figure is calculated monthly. For funds and portfolios, Morningstar updates this figure upon receipt of the most-recent portfolio holdings from the asset manager.

Sales Growth

The sales growth rate for a stock is a measure of how the stock’s sales per share (SPS) has grown over the last five years. Sales growth is one of the five growth factors used to calculate the Morningstar Style Box. For portfolios, this data point is the share-weighted collective sales growth for all stocks in the current portfolio. (The share-weighted average is more accurate than an asset-weighted average for this type of calculation.)

Benefits

Sales growth tells an investor how quickly a company is increasing its revenues. The sales growth rate helps Morningstar determine how strong the overall growth-orientation is for a stock or portfolio.

Origin

Morningstar generates this figure in-house based on stock statistics from our internal equities databases. For stocks, this figure is calculated monthly. For funds and portfolios, Morningstar updates this figure upon receipt of the most-recent portfolio holdings from the asset manager.

Cash Flow Growth

The cash flow growth rate for a stock is a measure of how the stock’s cash flow per share (CFPS) has grown over the last three to five years. Cash flow growth is one of the five growth factors used to calculate the Morningstar Style Box. For portfolios, this data point is the share-weighted collective cash flow growth for all stocks in the current portfolio. (The share-weighted average is more accurate than an asset-weighted average for this type of calculation.)

Benefits

Cash flow growth tells an investor how quickly a company is generating inflows of cash from operations. The cash flow growth rate helps Morningstar determine how strong the overall growth-orientation is for a stock or portfolio.

Origin

Morningstar generates this figure in-house based on stock statistics from our internal equities databases. For stocks, this figure is calculated monthly. For funds and portfolios, Morningstar updates this figure upon receipt of the most-recent portfolio holdings from the asset manager.

Value
An investment strategy that selects shares that are attractively priced, relative to the earnings or the internal value of the company – or, in some cases, relative to the market. The theory is that the share price of these companies will eventually rise to reflect the true value. Many consider value investing safer than growth investing, since prices of value stocks tend to be less volatile.

Value stocks
An undervalued stock as indicated by low price earning ratio (P/E ratio), high dividend yield and a low price to book ratio.

Venture capital
Funds provided to high-potential start-up companies and small businesses to assist them with growth.

Vesting period
The period of time before shares are owned unconditionally by an employee in an employee stock option plan. If his/her employment terminates before this period ends, the company can buy back the shares at their original price.

Virtual Currency Share Class
Currency-converted price (and dividend) share classes of funds, which have no independent accounting profile of their own and are identical in most other respects to the base currency class of the fund. Most funds will accept investment in a wide range of currencies, but may not provide Net Asset Value or unit price information in all currencies. Shareholders wishing to invest or redeem their investment in a currency other than those offered by the fund provider’s virtual currency share classes will usually incur a currency exchange fee.

Key features of virtual currency share classes:

• Created to reflect investment (pricing and dealing) currency options that the fund company has made available to investors;

• No separate accounting entity – all balance sheet statements are presented only in the base currency of the fund class;

• Number of units in issue will be identical to that of the base currency class;

• In a common currency share class, net assets will be identical to that of the base class, allowing for differences due to exchange rates used in currency conversion;

• Dividend payments may or may not be made in the virtual class currency;

• May or may not be referenced in the prospectus as an independent share class;

• May or may not have a unique ISIN;

• UCITS-compliant funds may or may not publish an independent Key Investor Information Document (KIID);

• No foreign exchange conversion fee for subscription or redemption in the virtual currency.

Volatility
Volatility is the observed price movement of an asset. Standard deviation is the most widely used measure of volatility. Volatility and standard deviation are generally considered to be a measure of risk. (See standard deviation.)

Volume
The amount of trading in the market in a given time period.

Voting right
The right to vote on public companies affairs that is gained by owning common stock.

Wall Street
The financial centre of New York in Manhattan.

Warrants
Securities giving the holder a right to subscribe to a share or a bond at a given price and from a certain date.

Western Europe – Euro
Proportion of portfolio invested in the euro-zone which is comprised of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain.

Western Europe – Non Euro
Proportion of portfolio invested in the western European countries outside the euro-zone: Andorra, Denmark, Gibraltar, Greenland, Iceland, Liechtenstein, Malta, Monaco, Norway, San Marino, Sweden, Switzerland and the Vatican City.

wkn
WertpapierKennNummer. A German system for numbering financial instruments.

Wrap account
An internet-based account that allows investors to aggregate all of their investments, such as personal pensions and unit trusts, onto one platform. They can then buy, sell and manage their investments through this platform.

X-ray
A tool devised by Morningstar which allows investors to breakdown a combined portfolio of funds into constituent elements such as its holdings in stockmarket sectors and geographic regions.

Year end
The end of the company’s accounting year.

Year to date (YTD)
This figure indicates how well the fund, index or category has performed to this date in the year. For example, if you were looking at the site on March 21st, the YTD figures are from the December 31st to March 20th. They are updated every night, excluding weekends and bank holidays.

Yield
The rate of return, expressed as a percentage, paid on an investment – in the form of dividends for stocks and funds or the coupon rate for bonds. Yield should not be confused with Total Return.

Yield curve
Depicts the relationship between a bond´s maturity and its yield. The yield curve usually refers to this relation for government bonds (gilts). Whilst the curve is often sloping upwards (i.e. higher yields for longer maturities), it is not unusual to observe other shapes (inverted, U-shaped, etc…).

Yield to Maturity
The rate that is used to discount future coupon and principal payments to obtain the market price of the bond. A high yield means a low price – the bond is cheap – and a low yield means a high price – the bond is expensive.

Zero Coupon Bond
A fixed income investment that is issued at a discount to its face value but pays no coupons (interest) through its life. For example, an investor could pay £900, receive no annual payments for five years, but get £1000 when the bond matures.

Zero-sum game
One participants gain is another’s loss, the returns are always the same and there is no change in wealth.